Commodities Indexhitsrrcord as world rebound meets shortages - Bloomberg

Buying coming in…
Now up 15%….

Now up 12%, on good news about FeSi prices hitting US$4,125/ton, OMH cost only US$1000/ton
GPM 300%, unheard of!!!

We can expect Bursa investors to react this afternoon

OMH just made an announcement on FeSi price. It has hit through the roof, now FeSi at US$4,125/ton…OMH cost is only US$1,000 per ton

Up 6.8% today…should continue into afternoon session.

With the current ferroalloy prices at all time high, and continue to move higher ie up another 40% MnSi (manganese silicon) and 80% FeSi (Ferrosilicon) in 1 month from Sep 2021, we can expect profit for OMH to surge to record high US$200-300m based on current spot price.
OMH forward PE is now record Low 2-3x based on RM3!!!

OMH business has many synergies for PMetal given they are both smelters at the same industrial park at Sarawak. It is also a very good diversification strategy for PMetal. Best of all, OMH is seriously profitable, at very cheap valuation.

Even if PMetal offers RM6, it is still only 10-15% of PMetal market cap.
At RM6, many OMH shareholders will sell out…so PMetal can easier be the single largest OMH shareholder in a takeover

If OMH share price stay too Low for too long, takeover will be a real possibility

PMetal PE is 74x and OMH forward PE is probably 3-5x
I must say PMetal mgt is very capital market savve, they can take advantage of capital market to help their capital structure. They believe they give priority to IR/PR to bring in new investors. I cannot say the same for OMH mgt.

If I were PMetal, I would do Takeover of OMH. OMH is so cheap by all measures. Immediately, PMetal profit would double. Most OMH shareholders will be more than happy to exchange for PMetal shares haha…

At FeSi Us$3,000/ton, OMH will be making net profit US$200-300m pa. This will be similar to Pmetal earning. Yet PMetal market cap 10x bigger than OMH. How this market can really misprice even tho they are trading on same exchange

Both two big producers of ferroalloy ie China and India are suffering from power shortage! This will further curb the supply of ferroalloy esp going into the winter months

Source: Reuters - China metal consumers to feel supply sting from forced power cut (29Sep21)

In 3Q 2021 alone, Ferrosilicon is up 87% and Manganese silicon is up 58%!
It is probably the best performance commodity for this super cycle

Bursa investors will wake up to this stock very soon…there is now a lot more IR/PR effort compared to the past.

Ferroglobe continued to make losses for 1Q and 2Q 2021, yet its market cap is still US$1.5b, this is 3x bigger than OMH which will be making record profits (>A$200-300m) based on current spot Alloy prices!

Ferrosilicon (FeSi) prices now hits the highest level since the start of Fastmarkets pricing records for FeSi, dating back to Jan 1997

China is the largest producer of ferroalloy in the world, producing >60% of world supply.

Shortage of ferroalloy is expected to continue as China state grid said it would strictly control power consumption by high energy consuming and pollution sectors. This will drive OMH alloy prices even higher

OM Sawarak is using hydro power on 20 year contract, cost is relatively fixed. Power cost in China and Europe are escalating, making OMH the cheapest cost producer.
This is doing wonders for ferroalloy prices and OMH profits

China Electricity Shock will further restrict the production of ferroalloy in China.
Expect ferroalloy prices to rally higher
FeSi now reaching US$3,000/ton (up 200% from 1 year), OMH cost is only US$1,000/ton
OMH produces 400kton of ferroalloy.
You can imagine the huge profit coming….

Share price will double very soon

We should expect very solid 2H2021 given the super high ferroalloy prices (GPM >100%!!!)
OMH likely to make >A$100-200m profits (MYR 300-600m) for 2021

OMH makes 400k ton pa of FeSi/MnSi. Gross Profit margin is US$800-1000k / ton. Simple calculation, GPM for smelter could reach US$350-400m pa
Mkt cap only A$700m or US$500m
Super Low PE. Will be takeover target if price don’t move soon

The fundamental for OMH is still strong given the FeSi alloy price is now US$1,900-2000!!! This will mean OMH will be making close to GPM of 100%.
This is an all time high for FeSi since the Sarawak factory has been in operation. Even in 2018 when OMH share price hit $1.70, FeSi is only trading at high of US$1,700++ (average of US$1,400 for whole of 2018).
We are now waiting for OMH announcement that the Sarawak factory is being put back into production, which could be any time soon.
Hopefully this can drive back more buying interest for those investors who understand the fundamental of this company.

At 75% capacity, OMH produces
(i) 130K ton/pa FeSi (making GPM of US$900/ton i.e. total US$117m),
(ii) 250K ton/pa MnSI (making GPM US$500/ton i.e. total US$125m)
Total GPM of US$242m per year

At 100% capacity, OMH produces
(i) 170K ton/pa FeSi (making GPM of US$900/ton i.e. total US$153m),
(ii) 330K ton/pa MnSI (making GPM US$500/ton i.e. total US$165m)
Total GPM of US$318m per year

Current Market cap is only A$630m , it is only PE of 3-5x

OM Holdings (OMH.MK) is the first ASX-Bursa secondary listing which will happen on 22 June 2021.

Background:

OMH is one of the world’s top integrated manganese ore and ferroalloy producers involved in mining, smelting and trading through its operation in Australia, China, Japan, Malaysia, Singapore and South Africa. It runs the lowest cost quartile smelter complex in Sarawak, the largest in Asia (ex China).
Further details at www.omholdingsltd.com


Investment Summary (UOBKH Initial Coverage Jun 2021):

- Eco-friendly (ESG play) and the world’s lowest-quartile-cost manganese smelter operator.
- Prime beneficiary of the commodities supercycle, amid strong demand fuelled by the economic recovery and structural supply shortage created by the global decarbonisation trend.
- a major recovery play in 2022, as herd immunity against COVID-19 will allow production to recover.

OMH: Grossly Undervalued Commodity/Material Industrial Stock

i) FeSi / MnSi Alloy Prices Surge >50%, GPM >50%
Stock Price is trading at 50% discount from its recent high of A$1.70 (RM 5.35). Currently, the stock price has not factored in the recent surge in commodity prices (FeSi/MnSi GPM >50%) since December 2020, which will generate expected gross profit of US$150-210m based on the recent alloy prices increase.

Projected net profit for FYE2021 = > US$50m-US$100m (or about RM 200m – 400m) and FYE 2022 (full production year) = > US$100m – 180m (RM 400m – 700m). This is achievable and in the range of profit achieved for FYE 2018 (Profit A$160m or RM 500m) when the FeSi prices surge.


FeSi Alloy
Alloy Price: U$1,500-1,700/ton
Cost: US$1,000/ton
GPM: US$600/ton (or 50%)

A) Current Capacity (75%): 130k ton
Gross Profit ~ US$78m

B) Full Capacity (100%): 170K ton
Gross Profit ~US$102m


MnSi Alloy
Alloy Price: US$1,200 – 1,300
Cost: US$850/ton
GPM: US$450/ton (or 50%)

A) Current Capacity (75%): 250K ton
Gross Profit ~ US$112m

B) Full Capacity (100%): 330K ton
Gross Profit ~ US$148m

Total Gross Profit
A) 75% Capacity = US$190m (RM788m)
B) 100% Capacity = US$250m (RM1,035m)

(Note: Factory currently shutdown due to MCO/Covid. Expected to re-start operation (75% capacity) in July 2021 after MCO and at full capacity by 4Q 2021 due to labour shortage as a result of Covid.)


ii) OMH is grossly undervalued at forward PE 3-5x (FYE 2021/22) compared to Press Metal (PE 80x), Lynas (PE 60x)

Based on the projected profit of >A$100m (RM 315m) for FYE 2021/22, the forward PE is only 3-5x. Both Press Metal / Lynas has large PEs due to the fact that they are more well covered by analyst and institutional funds. The upcoming Bursa secondary listing for OMH (expected in 22 Jun 2021) should bring about re-rating of OMH valuation as its current ASX listing was not able to attract any analyst coverage/institutional fund followings and thus suffer from low liquidity.

Even at PE 20x @ FYE 2021/22, OMH could be trading at > A$3-5 (> RM10) vs current price of only A$0.88 (RM2.7). This could be a multi-bagger.

OMH should revisit its recent high of $1.70 leading up and after the Bursa listing, while riding on high smelting profit margin in 1H2021. The upcoming Bursa listing will provide a further boost up for its share price as the stock is being re-rated by the Malaysia market with similar peers trading at PE 60-80x