Summary

• Production. In 4Q23, production output for FeSi stood at 40,635 tonnes (+18% YoY, +3%) QoQ as compared to 39,296 in 3Q23 and 34,332 in 4Q22. Meanwhile, Manganese alloys which include silicomanganese (SiMn) and high carbon ferromanganese (HCFeMn) production registered at 84,571 tonnes (+104% YoY, - 3% QoQ).

• Sales. In 4Q23, a total of 43,346 tonnes (+4% YoY, +26% QoQ) of FeSi and 113,585 tonnes (+115% YoY, +68% QoQ) of manganese alloys were sold. The sales increase was due to shipments carried forward from previous quarter.

• Furnaces conditions. 1 FeSi furnace began hot commissioning and performance testing at end-Dec 2023, bringing the total operational FeSi furnaces to 8 units. Meanwhile, 14 out of the 16 furnaces have undergone and completed major maintenance, of which 12 furnaces have passed hot commissioning and performance testing. 1 manganese alloy furnace’s hot commissioning has been extended due to the furnace not performing as per contract requirements. 2 FeSi furnaces are scheduled to commence major maintenance in 2025.

• Silicon metal project. Fabricated equipment for the silicon metal conversion project has been delivered on site, and the replacement works have commenced in the mid-Jan 2024, and are targeted to be completed by the end-Feb 2024. Both silicon metal furnaces are producing FeSi to maximize furnace utilization.

• Capacity. Upon completion of the conversion works and scheduled major maintenance, OMH will have a design annual capacity to of approximately 120k- 126k tonnes of FeSi, 333k-400k tonnes of manganese alloys and 21k-24.5k tonnes of silicon metal. The Plant also consists of a sinter plant that has a design capacity to produce 250k tonnes of sinter ore per annum.

• Material price trend. 44% Mn ore closed at USD4.17/dmtu CIF China as of Dec-23 vs. USD4.37/dmtu CIF China Sep-23. Meanwhile, FeSi prices decreased from USD1360 to USD1285 per tonne CIF Japan and SiMn price fell from USD945 to USD900 per tonne CIF Japan and these were mainly attributable to reduced global demand and higher production rates from FeSi smelters in China.

• Shipping rates. Freight rates have normalized over the past few quarters, but with the recent spike in the Middle East tension, we reckon that freight prices may remain elevated above the pre-Covid19 pandemic levels.

Valuation & Recommendation

• Earnings forecast. No change to our FY23f-25f earnings forecast pending for results announcement this month.

• Maintained BUY with TP at RM1.92. The target price is derived by assigning targeted P/E multiple of 7.0x to mid-FY24f 27.4 sen. The assigned target P/E represents a slight discount to the average of 9.0x of selected mining and smelting companies listed on Bursa Malaysia as well as international scale.

• Risks to our recommendation and target price include weaker-than-expected production and ferroalloy prices. OMH is also exposed to currency risk, whereby a weaker USD against the ringgit would be a drawback and vice versa.

Source: Mplus Research - 2 Feb 2024