Ann: Investor Presentation Q1 2023, page-160

Meaningful recovery in earnings for OMH

• • Thursday, 20 Jul 2023

PETALING JAYA: OM Holdings Bhd (OMH) is expected to see a meaningful recovery in earnings next year, driven by the rebound of the average selling prices (ASPs) of ferrosilicon and manganese alloys, alongside capacity expansion.
The integrated ferroalloy and manganese ore company, however, will have to first endure a lacklustre 2023, as the ASPs of ferrosilicon and manganese alloys are expected to remain relatively weak amid the slow recovery of the steel market.

According to UOB Kay Hian (UOBKH) Research, every US$100 (RM454) per tonne increase in the ASPs for ferrosilicon and manganese alloys will boost OMH’s earnings by about 25% annually.
“As the world’s lowest cost quartile manganese smelter, OMH is in a sweet spot to benefit from ferroalloy prices recovery, backed by structurally favourable supply-demand dynamics and the company’s use of low-cost eco-friendly hydropower,” the brokerage said in its recent report.
UOBKH Research maintained its “buy” call on OMH, with a lower target price of RM2.65, implying 10 times the estimated price-earnings ratio for 2024.
The brokerage explained that it had cut its target price for the counter to RM2.65 from RM3.53 previously to account for lower earnings estimates for 2023-2025.
Citing lower ASPs for ferrosilicon and manganese alloys, UOBKH Research cut its earnings forecasts for OMH by 81% to RM82mil for 2023; 59% to RM196mil for 2024; and 35% to RM331mil for 2025.

Meanwhile, OMH’s diversification into silicon metal bodes well for the group as the move would enable it to capture further growth potential, UOBKH Research said.
“Silicon metal has a higher compounded annual growth rate of 4.6%, which is double that of ferrosilicon and manganese alloys over 2023-2030,” it said, citing Straits Research, Grand View Research.
“This is due to of its exposure to higher-growth renewable energy sectors such as acting as an alloying agent for aluminium to replace steel in vehicles (making them lighter and more energy efficient); and consumption for polysilicon use to make solar photovoltaic panels and serving as a raw material for the manufacture of single-crystal silicon wafers,” it added.
OMH had secured electricity supply of 350-megawatt to fuel its expansion plan of doubling capacity to 725 kilotonne per annum by 2026.
“It is worth noting that electricity comprises 40% of OMH’s smelting cost. We estimate their electricity costs to be in the range of US$0.04-US$0.06 (18.2 sen to 27.3 sen) per kilowatt hour, with a projected annual escalation of 1.5%-2.5%,” UOBKH Research noted.
“These estimates position OMH in the lowest quartile for production costs, while comparable global smelters often incur costs that are two to three times higher,” it added.

https://www.thestar.com.my/business/business-news/2023/07/20/meaningful-recovery-in-earnings-for-omh