OMH misses consensus for FY23 on weak steel ASPs

OM Holdings Bhd’s (OMH) financial year 2023 (FY23) net profit of US$18.1 million missed consensus estimate by 39 per cent, coming largely from weaker-than-expected average selling price (ASP) realised on a weak steel sector globally.

Researchers with Kenanga Investment Bank Bhd (Kenanga Research) noted that OMH’s FY23 revenue declined sharply by 31 per cent to US$589.2 million, despite improving sales volume, as the realised ASP was substantially lower.

“S&P Platts data showed that ferrosilicon (FeSi) spot price plummeted by 27 per cent from US$1,901 per metric tonne (MT) to US$1,437 per MT in 2023 while silicomanganese (SiMn) spot price plunged by 24 per cent to US$962 per MT from US$1,309 per MT in 2022.

“Meanwhile, OM Sarawak sold 294,400MT of manganese alloy (Mn Alloy) which was 36 per cent higher year on year (y-o-y) while sales volume for FeSi slid slightly by per cent to 139,500MT.

“Given the substantially reduced ASP, net profit plunged 73 per cent to US$18.1 million.”

Similarly, its 2HFY23 turnover declined, by 16 per cent to US$269.5 million from US$319.7 million in 1HFY23, on lower realised ASP despite having a higher sales volume by 47 per cent for FeSi and 76 per cent for Mn Alloy.

S&P Platts registered 14 per cent fall in SiMn spot price to US$890 per MT and 16 per cent decline in FeSi spot price to US$1,314 per MT. As a result, 2HFY23 chalked a small net loss of US$1 million from net profit of US$19.1 million in 1HFY23.

The company guided for a higher FY24 production volume with a total output of 430,000 to 470,000 metric tonnes per annum (MTPA) from circa 434,000 MTPA in FY23 as FeSi production is running 6 to 8 furnaces from 5 to 7 furnaces in FY23 while Mn Alloys run at full 8 furnaces as opposed to 5 to 8 furnaces in FY23.

However, its ASP will remain challenging on subdued demand from the steel sector but it should be bottoming out as year to date FY24 ASP is higher than that in 2HFY23.

“We continue to like OMH for its structural cost advantage over its international peers given its access to low-cost hydro-power under a 20-year contract ending 2033; its strong growth prospects underpinned by plans to expand its capacity by 30 to 36 per cent to 610,000640,000 MTPA over the medium term; and its appeal to investor given its clean energy source.”