• OMH's FeSi production volume in 1H24 exceeded our expectations, reaching 70% of our estimate partly arising from the operation of one MetSi furnace dedicated to FeSi production. On the other hand, the production of Mn alloys aligned with our initial projections.

• For the sales volume, FeSi and Mn alloys rose 67.3% YoY and 40.7% YoY to 96.8k MT and 154.2k MT respectively during 1H24.

• We make no changes to our FY24-26F earnings forecast.

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

2Q24 Production and Sales Volume Update

During 1H24, 15 out of 16 furnaces were operational. A scheduled 21- day shutdown occurred for one MetSi furnace in June’24. The remaining operational capacity included seven furnaces (six FeSi furnaces and one MetSi furnace - dedicated to FeSi production) while the other eight furnaces focused on producing Mn alloys. FeSi production down 2.6% QoQ to 48.3k MT. This decline was due to a temporary shutdown of one MetSi furnace that had been producing FeSi. The shutdown began on 10 June 2024, for preparatory work ahead of hot commissioning and performance testing for MetSi production starting on 1 July 2024. Nonetheless, production of Mn alloys inched up 12% QoQ, thanks to higher production of high carbon ferromanganese (HCFeMn).

Higher ASPs During 2Q24

FeSi price rose slightly by 6.6% QoQ to US$1,290 influenced by limited global supply following a crackdown on tax evasion by Chinese customs. SiMn price saw a significant increase of 26.6% QoQ, reaching US$1,165 driven by constrained availability of high-grade ore. Price for SiMn have since stabilized as of July 2024.

Major Maintenance Activities are on Track

To date, 14 out of 16 furnaces have completed major maintenance with 13 furnaces successfully passing hot commissioning and performance testing. The hot commissioning of one Mn alloy furnace has been extended to ensure production performance meets the acceptance criteria. The remaining two FeSi furnaces are scheduled for major maintenance in 2025.

Metallic Silicon Progress Update

Provided there are no unexpected delays, the hot commissioning and performance testing of one MetSi furnace are projected to require at least three months. The transition to full-scale commercial production will be carefully timed to optimize market entry and returns. Meanwhile,

the other MetSi furnace remains in FeSi production to ensure maximum utilization of operational capacity.

Earnings Estimate and Result Preview

No change to our FY24-FY26F earnings forecast. We remain optimistic about the turnaround in OMH’s earnings driven by elevated ASPs and better sales volume. For 1H24, we anticipate OMH will report revenue of US$301.6mn and core earnings of US$10.9mn. This forecast is supported by higher ASPs for both FeSi and SiMn, along with robust sales volumes for these products. We expect upward pressure on prices moving forward, driven by production disruptions or capacity reductions among key suppliers and increasing global demand.

Reiterate BUY at TP of RM1.96

Maintain a BUY call on OMH with unchanged TP of RM1.96. Our valuation is based on average forward peers' P/E ratio of 9x pegged to 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 is anticipated to outshine due to its competitive and low-cost structure.

Source: BIMB Securities Research - 2 Aug 2024