• OMH’s FeSi production volume in 1Q24 was above our estimate at 35.4%, underpinned by temporary utilisation of two MetSi furnaces for FeSi production ahead of MetSi commercial production in 2H24.

• However, production of Mn alloys were inline with our initial projection despite the extension of hot commissioning for one furnace in 4Q23.

• OMH’s sales volume rose 56.6% YoY to 114.8k MT in 1Q24. This, coupled with the rebound in Mn alloys price, will drive the turnaround in OMH’s earnings in FY24 as we expected. Hence, no changes is made to our FY24-26F earnings forecast

• We are optimistic on OMH's outlook underpinned by its strategic diversification into the MetSi market, which is poised to capitalize on emerging opportunities in the diversified industries particularly from growing renewable energy sector.

• Maintain a BUY call for OMH with unchanged TP of RM1.96. Our valuation is based on an average forward peers' P/E ratio of 9x pegged to FY25F EPS of 21.8sen.

1Q24 Production and Sales Volume Update

During the quarter, all 16 furnaces were in operation including six Ferrosilicon (FeSI), two silicon metal (MetSi) and eight manganese alloys (Mn alloys) furnaces. FeSi production soared 22% QoQ to 49.6k MT due to the utilisation of two MetSi furnaces for FeSi production while awaiting for the commercial production of MetSi in 2H24. Meanwhile production of manganese alloys (Mn alloys) declined 11.2% QoQ to 70.5k MT due to higher production of high carbon ferromanganese (HCFeMn) as well as the extension of hot commissioning for one Mn alloy furnace during 4Q23. As for sales volume, FeSi improved 6.6% QoQ and +63.4 YoY while Mn alloys fell 39.6% QoQ but jumped 52.4% YoY. We deemed FeSi production and sales volume as above our in-house projection (35.4% and 33% respectively). Meanwhile Mn alloy production and sales volume were within our in-house estimate, making up 28.9% and 23.3% respectively.

Planned Major Maintenance is Progressing Well

The company has completed major maintenance works at 14 out of 16 furnaces so far, with 13 furnaces have passed hot commissioning and performance testing. The remaining one Mn alloy furnace had finished rectification works and resumed hot commissioning and performance testing in late Mar’24. This furnace was offline since a temporary shutdown in late Nov’23 and it is expected to finish hot commissioning by June’24. The remaining 2 FeSi furnaces are set for major maintenance in 2025 as previously reported.

Metallic Silicon Progress Update

The MetSi conversion project replacement works were concluded in 1Q24. Hot commissioning of 1 MetSi furnace is scheduled for 3Q24. Management has taken this strategic decision to fully ramp up the furnaces to commercial production in order to achieve optimal returns. During this interim period, both MetSi furnaces are producing FeSi to maximize furnace utilization.

Earnings Estimate

No change to our FY24-FY26F earnings forecast. We remain optimistic with the turnaround in OMH’s earnings driven by higher product prices and better sales volume. To recap, OMH registered a core LATAMI of US$5.1mn during FY23 due to lower ASPs despite increase in sales volume. In 1H24, we anticipate OMH to register a core PATAMI of US$10.9mn banking on recent rebound in Mn alloy price. Noted that Mn alloy has reached its bottom since last two quarters and now has started to normalise given reduced capacity from the Ukraine and India. We are of the view that this momentum shall sustain and therefore could improve OMH’s overall operational performance.

Reiterate BUY at TP of RM1.96

Maintain a BUY call for OMH with unchanged TP of RM1.96. Our valuation is based on average forward peers' P/E ratio of 9x pegged on FY25F EPS of 21.8sen. We favour the company due to the following: i) competitive advantage as a low-cost ferroalloy smelter players compared to its peer, ii) extended capacity growth and diversified products mix, and iii) enviable ESG standing given their exposure to clean energy resource. Above all, OMH is expected to benefit from rapid industry consolidation and it is expected to outshine due to their competitive and low-cost structure.

Source: BIMB Securities Research - 7 May 2024