• Maintain BUY (TP: RM1.96). OM Holdings Ltd (OMH) registered a core LATAMI of US$5.1mn which substantially below our in-house and market projection. The uninspiring result was dented by lower ASPs despite increase in sales volume. We hold the view that OMH faces a challenging short-term business outlook due to high inflationary pressure, which is expected to dampen demand. Given the subdued demand, the anticipated hike in ferroalloy prices is expected to be challenging and we foresee ferroalloy prices to maintain at current level, particularly in 1HFY24. Nonetheless, we commend OMH's strategic move towards expanding into silicon metal, which is expected to drive growth in the long run, through diversification to offer value added products. We cut FY24-FY25F earnings forecast by 49-26% to US$21.7mn-38.8mn to account for lower ASPs assumption; and introduced FY26F earnings forecast with 33% YoY growth. Maintain a BUY call with a lower TP of RM1.96 (from RM2.11). Our valuation implies an average forward peers' P/E ratio of 9x and a FY25F EPS of 21.8sen.

• Key Highlight. Ferrosilicon (FeSi) and silicon manganese (SiMn) prices decline 21% YoY and 13% YoY, reaching USD1,285/tonne and USD900/tonne, respectively. Additionally, higher finance costs were recorded during FY23 due to increased interest rate.

• Earning Revision. We cut FY24-FY25F earnings forecast by 49-26%, respectively to US$21.7mn-38.8mn, to account for lower ASPs assumption, and introduced FY26F earnings forecast with 33% YoY growth.

• Outlook. These challenging circumstances create uncertainties and obstacles for the ferroalloy industry, leading to an uncertain short-term outlook, in our view. Nonetheless, we remain optimistic about OMH's strategic move towards expanding into silicon metal, which we believe will drive growth in the long run, through diversification to offer value added products. All in all, we favour OMH due to its: i) competitive advantage as a low-cost ferroalloy smelter players compared to its peer, ii) extended capacity growth and diversified products mix, and iii) enviable ESG standing given their exposure to clean energy resource. Above all, OMH is expected to benefit from rapid industry consolidation and is expected to outshine due to their competitive and low-cost structure.

Source: BIMB Securities Research - 1 Mar 2024