OMH mildly optimistic on product price outlook in 2024
KUCHING: Vertically integrated manganese ore and ferroalloy provider, OM Holdings Bhd (OMH), is mildly optimistic on the outlook of its product prices in 2024 given the current improved demandsupply dynamics.
In a company update report, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) guided that the current demand-supply demand dynamics of ferroalloy products have improved which have resulted in priced rebounding during the fourth quarter of financial year 2023 (4QFY23).
“While Chinese producers have raised production, this is offset by supply loss following the nationalisation of the largest Russian FeSi producer recently,” the research arm explained.
To recap, the spot prices for ferrosilicon (FeSi) and silicone manganese (SiMn) had respectively plunged by 27 per cent and 24 per cent in 2023 to lows of US$1,437 and US$962 per metric tonne (MT).
As result of this average selling price (ASP) plunge, OMH’s FY23 results took a steep tumble as its net profit during the period contracted by 73 per cent year over year (y-o-y) on a 32 per cent decline in revenue.
The group’s earnings decline was largely due to a 32 per cent lower ASP which negated a 17 per cent in sales volume.
Additionally, OMH is also expected to see increased production numbers in 2024 as the group has recently raised its FY24F output guidance from its Sarawak plant from 430 to 470 MT (guided back at the end of Jan) to 460 to 490 MT.
“This is on the back of higher capacity utilisation as more furnaces, currently under major maintenance, will be restarted sooner than expected,” guided the research arm.
At the end of December 2023, 14 out of 16 furnaces in the plant have completed major maintenance while the remaining two FeSi furnaces is expected to undergo major maintenance works later in FY25.
“Meanwhile, fabrication works are ongoing for its high-margin metallic silicon (MetSi) furnaces and they will be restarted within this year,” Kenanga Research added.
This improved outlook of ASPs of ferro alloys as well as anticipated increased production output from OMH bodes well with the group’s earnings outlook for the year ahead.
As such, the research arm said it continued to like OMH due to its structural cost advantage over international peers given its access to low-cost hydro-power, its strong growth prospects supported by capacity expansion plans of 30 to 36 per cent over the mediumterm, and its appeal to new more environmental conscious investors.
That said, the research arm highlighted that risk to its view include an unexpected global recession resulting in a sharp fall of steel demand, escalation in the cost of key inputs such as manganese ore, quartz and semicoke, and major plant disruptions and closure.
Kenanga Research maintained a ‘Outperform’ call on OMH with an unchanged target price of RM1.80 that is based on an unchanged six-fold FY25F price earnings ratio (PER) which is similar to the average of 6.5-fold of its international peers.