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Emiten Report

27 February 2024

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NCKL: BUY (Maintained), TP at 1,200 (from 1,500) – More Clarity on the Upcoming Corporate Action

We attended NCKL’s analyst meeting, in which the company discussed further about the upcoming EGMS and its corporate action plans (private placement or rights issue). Here are the key takeaways:

Strengthening the core business through expansion and new strategic investor. NCKL plans to hold a private placement/PP (the company will offer 10% of issued and paid-up capital) or a rights issue (30% of issued and paid-up capital). The company mentioned the corporate action would be an opportunity to strengthen its presence in the EV battery industry by exploring potential capacity expansion (through the acquisition of a nickel mine close to the Obi island or additional stake in the ONC smelter; NCKL plans to acquire up to 30% stake in the smelter from a family-related party) and wider market penetration outside the Chinese market, as the company might have a new strategic investor in the future (NCKL mentioned that the upcoming strategic investor is a commodity-related company not owned by Chinese parties). The corporate action plan(s) are subject to shareholders’ approval (NCKL will hold an EGMS on March 15, 2024). According to the regulation, NCKL has 24 months to execute a private placement and 12 months to conduct a rights issue post approval.

Positive in the long run on greater earnings from increased smelter stake. Assuming  IDR 870 exercise price, NCKL may raise up to IDR 21.9tn from rights issue and private placement, with respective potential dilution of 23.1% and 9.1%. In the short run, the corporate action might hurt NCKL’s EPS, but it should help boost the company’s net profit in the long run (with more earnings from additional stake in the smelter).

PP might be a better option allowing entry of strategic investor. We believe a private placement will be a better option for NCKL, helping the company obtain sufficient stake for a new strategic investor to come in, and we do not think NCKL can raise ample stake through a rights issue. However, if the company plans to execute a private placement, it has to secure a majority vote from independent investors.

A lower TP of IDR 1,200/share on decreased NPI prices. Due to oversupply, NPI prices have dropped considerably from its average 2023 level of USD 13,950/ton to USD 11,256/ton in the first 2 months of 2024. However, we believe that nickel prices have bottomed out, as low prices have led to supply cuts worldwide, and we expect prices to recover once the oversupply eases. That said, we revised down our NPI price forecasts by 12.6% and 7.0% to USD 12,500/ton and USD 12,700/ton in 2024F and 2025F respectively. Thus, we cut our NCKL earnings forecast by 31.3% (2024F) and 19.8% (2025F). Nevertheles, we decided to maintain our BUY rating for NCKL, albeit with a lower TP of IDR 1,200 per share (SOTP based), implying 2024 P/E of 11.8x, still at 14.8% discount to the sector. We believe in the current situation, NCKL has comparative advantages over its peers, on the back of (1) earnings buffers from capacity expansion and low cash cost; 2) attractive valuation at current price of IDR 870 per share (8.5x FY24 PE, vs industry peers’ PE of 13.6x); 3) excellent management as reflected by the company’s high FY24-25F ROE of more than 20% (sector: 13.7%).

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