OM Holdings Ltd

Vertically integrated manganese ore and ferroalloy player

• OM Holdings Ltd (OMH) started off since 1994 and has now evolved into one of the largest vertically integrated manganese ore and ferroalloy player in South East Asia market.

• Greenfield of expansion of Samalaju Smelting Complex is bearing fruit, placing OMH in the pole position against its peers in terms of competitive production cost over the long term.

• We initiate coverage on OMH with a BUY call and fair value of RM3.65, based on 9.0x P/E pegged to its forward FY23f EPS of 40.5 sen.

Investment Highlights

• Low-cost quartile smelter. OMH embarked into a greenfield of expansion via a 75:25 joint venture with Cahya Mata Sarawak Bhd in 2013 through the construction of Samalaju Smelting Complex. We like OMH position as the low-cost quartile smelter that gives the group a competitive edge against its peers as the plant operates on renewable hydro-power over a 20-year power purchase agreement with Sarawak Energy that provides 350MW low-cost hydropower that comes. Electricity costs make up approximately 50.0% of total production costs

• Furnaces conversion and capacity expansion. OMH is currently undertaking the expansion of two 33.0 MVA furnaces to improve manganese production capability and efficiency. Apart from ramping up production capacity, OMH also plans to convert existing 2 FeSi furnaces into metallic silicon (Metsi) by end-2022 that offers better margins.

• Improving steel demand. Rapid urbanisation in South East Asia (SEA) countries will sustain the improving demand for steel bodes well for OMH as approximately 30.0% of OMH’s ferroalloys are supplied to SEA market. According to the WorldSteel Association, global steel demand for finished steel is expected to grow to 1,924.6m mtpa (+2.7% YoY) in 2022.

Source: Mplus Research - 29 Mar 2022