Sector Update / Metals / Click here for full PDF version
Author(s): Ryan Winipta ; Reggie Parengkuan
- Only 3 out of 7 listed metal miners under our coverage reported their 1Q: & (below consensus), and (in-line).
- However, we expect , , , (under limited review) to also report soft 1Q24 on the back of lower commodity price.
- We think market is yet to price-in the elevated commodity price and 2Q24F earnings momentum, maintain sector Overweight.
1Q24 review: & below consensus, in-line
(report) & (report) both reported 1Q24 NP that were below consensus expectation while result was in-line (report). On nickel space, the soft 1Q24 earnings was primarily driven by lower commodity price (NPI, MHP/NiSO4, LME, Fig. 2), in addition to delayed mining-quota ( RKAB ) approval. Hard coking-coal (HCC) prices, on the other hand, remain elevated at above US$300/t for majority of 1Q, resulting in relatively robust earnings, which was in-line with consensus expectation.
1Q24F preview for other four miners under limited review
Based on Nickel Industries' 1Q result that operates in Morowali and Weda Bay industrial park, we expect (Morowali) and 's (Weda Bay) NPI smelter to report a similar result with cash margin down by 25-33% qoq on lower ASP (Fig. 3). Concurrently, with LME nickel price (1-month lag) declining by 11% qoq in 1Q, we expect to report weak earnings of US$20mn (16% consensus). All in all, we expect all four miners to report below consensus earnings achievement in 1Q (Fig. 1).
Share price and commodity price disconnect is an opportunity
& share prices which correlated with LME nickel price are currently trading at much lower level when LME was at ~US$18-19k/t range in the past (Fig. 4 & 5). While such event may reflect the concern on RKAB (for ) and divestment (for ), we think this may also reflect market scepticism on the sustainability of higher commodity price. This provides an opportunity as consensus may need to make upward adjustment into their earnings as we expect commodity price to remain elevated.
Market expectation is already relatively low for commodity names
We've seen the biggest consensus earnings downgrade in , , by 61%, 34%, 30% YTD, respectively, and across the board for miners under our coverage (Fig. 6) with the exception of . This is positive as markets' expectation on these names are already low and shall result in higher possibility of earnings beat in upcoming quarters. Moreover, 2Q24F-to-date so far has shown stronger commodity price & less external issues (i.e. RKAB ) vs. 1Q24 (Fig. 2), providing a stronger 2Q24 outlook.
Maintain sector Overweight; & as top pick
We maintain our sector Overweight rating with & as our top pick; we like due to its exposure to gold & copper, which we have higher preference over nickel, and on its earnings momentum post soft 1Q24 result, starting 2Q24F onwards. Downside risks include lower than expected demand, and further supply addition to LME-system coming from Indonesia. We also maintain our preference for gold > copper > LME nickel > nickel sulphate/NPI.
Sumber : IPS
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