Summary

• OM Holdings Ltd’s (OMH) 1HFY22 net profit jumped 267.9% YoY to RM202.0m, driven by the higher transacted prices of manganese ores and ferroalloys. Revenue for the period added 34.9% YoY to RM1.92bn.

• The reported earnings came above expectations, making up to 79.8% of our forecasted net profit of RM253.2m and 79.9% of consensus net profit of RM252.6m. The variance is mainly due to the higher-than-expected FeSi and Mn alloy prices during 1HFY22, amid the uncertainty of ferroalloy supply following the geopolitical tension between Ukraine and Russia.

• We gather that FeSi prices has begun to normalise, falling from USD2,225/MT as at end-1Q22 to USD1,925/MT (-13.5% QoQ) as at end-2Q22. Meanwhile, SiMn prices also pullback from USD1,775/MT as at end-1Q22 to USD1,225/MT (-31.0% QoQ) as at end-2Q22. The weakness was due to softer demand from steel mills as a result from higher energy costs and weaker global steel market. Price of 44.0% Mn ore also fell -6.8% QoQ to USD 7.27/dmtu CIF China, during the period.

• We reckon that purchases are keeping their hands off from stocking up inventory levels amid concern over potentially slower demand with the global economy struggles to stave off the persistently high inflation and slowdown in economic activities. The high energy costs (Brent oil steady above USD90/bbl) would remain as a key factor of slowing demand from steel mill players.

• At Samalaju, OMH continues to operate with 12 out of 16 furnaces (6 FeSi and 6 Mn alloy). Of the remaining 4 furnaces, 1 furnace is undergoing conversion to produce manganese alloys, 1 furnace is undergoing scheduled major maintenance and another 2 furnaces are undergoing conversion to produce silicon metal (Metsi) that is target for completion by end-2022. We are sanguine over the furnace conversion to produce higher value-added products with OMH aiming to diversify their client base into the aluminum, chemicals and solar downstream industry.

• With the quicker-than-expected change of tide in demand, material prices, both FeSi and SiMn are expected remain unexciting over the foreseeable future (below USD2,000/MT and USD1,300/MT respectively). We believe uncertainties persisted surrounding the global inflationary pressure may continue to sap demand.

Source: Mplus Research - 30 Aug 2022