M+ Online Research Articles

OM Holdings Ltd - Stabilised Furnaces Operating Environment

MalaccaSecurities
Publish date: Mon, 29 Jul 2024, 09:13 AM
An official blog in I3investor to publish research reports provided by Malacca Securities research team.

All materials published here are prepared by Malacca Securities. For latest offers on Malacca Securities trading products and news, please refer to: https://www.mplusonline.com.my

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Summary

  • To recap. OMH’S core LATMI came in below expectation during 2HFY23, where the key deviations were due to lower average selling prices of FeSi and Mn Ore.
  • Updates. FeSi prices remain range bound between USD1200-1300. SiMN rebounded from USD850 in 4Q2023 to USD1223 end-May 2024.
  • Announced new dividend policy. OMH to distribute 30% (up from 10%), subject to a cap of 50% of Free Cash Flow and other considerations.
  • Furnaces status. Total operational FeSi furnaces will be 6-8 in 2024 with a capacity of 130-140 ktpa, while Mn Alloys will have a capacity of 280-308 ktpa with 8 operating furnaces. Besides, fabrication works for the MetSi furnaces will be completed in 1Q24, and the hot commissioning phase is expected to start in 3Q24 with a capacity of 26-29 ktpa. The total Sarawak plant output will be 430-470 ktpa, with an expected utilization rate of more than 85%. Overall capacity in the long run will be around 450-490 ktpa, with the addition of one MetSI 33MVA furnace.

Outlook & Recommendation

  • Outlook. OMH’s operating furnaces have stabilized, and SiMn’s selling price has improved, but we think overall earnings may see limited improvement due to a subdued market environment in early 2024. Recent stabilized FeSi and improved SiMn prices may only translate to earnings by end-FY24, reflected in earnings releases during 1Q25.
  • Ceasing coverage. In view of the lacklustre earnings and due to reallocation of internal resources, we are ceasing coverage on OMH. Our last recommendation on OMH was HOLD with a target price of RM1.34, derived by assigning a P/E multiple of 7.0x to FY24f 19.1 sen.

Source: Mplus Research - 29 Jul 2024

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