Report Date and Broker Information

• Date: October 29, 2024
• Broker: UOB Kay Hian

Company Overview
Trimegah Bangun Persada, a vertically integrated nickel producer, operates on Obi Island, Indonesia, with over a decade of experience in the nickel industry. Listed under the Bloomberg ticker NCKL IJ, it falls within the Materials sector according to GICS. The company has a substantial market presence with a market capitalization of IDR 56,157.8 billion (approximately USD 3,571.5 million) and is primarily controlled by major shareholder Harita Jayaraya, which owns 86.7% of the company. The company issued approximately 63,098.6 million shares.

Financial Highlights and Market Performance

• Share Price: IDR 890
• Target Price: IDR 1,430 (previous target was IDR 1,100), indicating a potential 60.7% upside.
• Price Performance: The stock’s price has seen fluctuations over various periods, with the 52-week high and low at IDR 1,125 and IDR 760, respectively. Year-to-date, the stock has experienced an 11% decline.

Key Financial Metrics (FY2025 Forecast)

• Revenue: IDR 26,977 billion, reflecting growth expectations due to increased production and favorable nickel pricing.
• Net Profit: Expected to increase to IDR 8,052 billion in 2025, a year-on-year growth of 44.8%.
• Earnings Per Share (EPS): Forecasted at IDR 127.6 for 2025.
• Dividend Yield: Projected to rise from 3% in 2024 to 4.3% in 2026.

Growth Drivers for 2025

1. Commercial Production at KPS Phase 1
   The company’s earnings are expected to benefit significantly from the start of commercial production at the Karunia Permai Sentosa (KPS) Phase 1 ferronickel plant, which has an annual production capacity of 60,000 tonnes. Trimegah Bangun Persada holds a 30% stake in this project.

2. Increased Ore Production
   Production of saprolite and limonite ore is projected to grow by 28.6% and 50%, respectively. Limonite ore, with cash margins over 60%, is expected to contribute significantly to revenue, driven by demand from the KPS plant’s operations.

3. Full Utilization of ONC HPAL Plant
   The Obi Nickel Cobalt (ONC) HPAL plant, of which Trimegah Bangun Persada holds a 10% stake, will be fully operational, primarily processing limonite ore. This increased capacity utilization is anticipated to bolster production output.

4. Expansion Potential at KPS
   The company is also looking into expansion phases 2 and 3 at KPS, which could bring additional annual production of 125,000 tonnes of ferronickel, boosting future saprolite ore demand.

Nickel Market Outlook

• Nickel Pricing Forecast: The company expects nickel prices to reach USD 17,300 per tonne in 2025, up slightly from USD 17,000 per tonne in 2024. This price boost is supported by potential nickel demand in China, driven by growth in stainless steel and electric vehicle production.
• Supply and Demand Dynamics: A global nickel surplus of 244,000 tonnes was expected for 2024, with this surplus projected to drop to 68,000 tonnes in 2025. Contributing factors include the temporary suspension of Nickel West operations by Broken Hill Proprietary (BHP), which will reduce anticipated oversupply.

Earnings Sensitivity Analysis
The company’s earnings are closely tied to nickel price fluctuations. A 10% increase in nickel prices could lead to a 28% rise in Trimegah Bangun Persada’s 2025 earnings. Conversely, a 10% price decline could reduce earnings by the same margin.

Investment Recommendation
UOB Kay Hian has maintained a BUY recommendation with a target price of IDR 1,430, based on an EV/EBITDA multiple of 8.6x, which aligns with industry peers’ five-year averages. Despite risks of nickel oversupply, Trimegah Bangun Persada’s production ramp-up and anticipated nickel demand from China provide a positive outlook for investors.

Key Risks

• Nickel Price Decline: A drop in LME nickel prices could adversely impact revenue.
• Operational and Project Risks: Potential delays in project completion, weather-related disruptions, or reduced nickel demand are risks that could affect Trimegah Bangun Persada’s projections.