We initiate our coverage on NCKL with a BUY recommendation and a SOTP-based TP of IDR 2,000 per share (13.1x 2023F P/E; 4.3% lower than industry average). We used the DCF method to model each of the company’s projects with the following assumptions: WACC of 12.4%, no terminal growth. We favor NCKL due to several factors, including 1) its vertically integrated business structure, 2) its solid growth potential, supported by production capacity expansion, 3) its potential to become one of the biggest refined nickel producers, and 4) its position as one of the beneficiaries of the ‘green energy’ initiative.

Vertically integrated pure nickel player. PT Trimegah Bangun Persada (NCKL) is a vertically integrated nickel mining company mainly operating on Obi Island. It operates two nickel ore mines, with most of both mines’ products supplied to the company's smelters. NCKL currently operates two smelters: a rotary-kiln-electric furnace (RKEF) smelter (production capacity:25ktpa) and a High-Pressure Acid Leaching (HPAL) smelter (37ktpa).

One of the biggest players in the field. NCKL targets to book FeNi production capacity of 305ktpa in 2025F, supported by its RKEF projects, each with a capacity of 95ktpa (expected operating date: 2Q23) and 185ktpa (expected operating date: 2Q25). Regarding its HPAL smelter project, the development will be divided into three stages: the first stage (37 ktpa) is completed and is currently running at full capacity, The second stage (18ktpa, total: 55ktpa) is expected to commence production activites in 1Q23. For the third stage, NCKL expects to obtain an additional production capacity of 65ktpa from Lygend’s (NCKL’s partner) subsidiary, ONC (in which NCKL holds a 10% stake) starting in 1Q24, which will boost NCKL’s total HPAL capacity to 120ktpa. Assuming all of its projects come online, NCKL will become one of the biggest refined nickel producers in Indonesia.

Robust earnings growth on the back of higher production outlook. Given its aggressive expansion plan, we project NCKL to record solid revenue growth in 2023F and 2024F (projection: +165% YoY and +39% YoY, respectively). In addition, we expect to see larger contributions from JV revenue in 2023F (IDR 4.9tn) and 2024F (IDR 5.8tn), along with the increase in MHP production volume. On its bottom line, we expect NCKL to book net profit growth of  +98% YoY and +18% YoY in 2023F and 2024F, respectively.

BUY, TP of IDR 2,000 per share. We initiate our coverage on NCKL with a BUY recommendation and a SOTP-based TP of IDR 2,000 per share (13.1x 2023F P/E; 4.3% lower than industry average). We used the DCF method to model each of the company’s projects with the following assumptions: WACC of 12.4%, no terminal growth.