20140829-Maybank_KERPL-NICKEL_ASIA_NIKL.PM_LT_SUPPLY_DEFICIT_AND_MINE_REVIVAL_12页_510kb

Nickel Asia (NIKL PM) Summary

Core Content

Nickel Asia Corp (NIKL PM) is a Philippine-based company in the metals and mining sector. The company has a share price of PHP39.80, a market capitalization of USD2.3B, and a target price of PHP51.17, which represents a 29% increase. Maybank maintains a "BUY" recommendation for the stock, which remains unchanged.

Main Points

• Pay Factors and Supply Deficit: The pay factor, which is the percentage of paid nickel over contained nickel in ores, is expected to remain high due to a long-term supply deficit. This is supported by the fact that Chinese nickel pig iron (NPI) producers are likely to continue sourcing from Philippine nickel ore miners.

• Manicani Mine Revival: NIKL's fifth mine is likely to be the old Manicani deposit, which was previously suspended in 2004. The mine is being considered for re-opening due to the government's request for rehabilitation, driven by the economic impact of typhoon Haiyan and NIKL's humanitarian efforts. This could provide significant upside to NIKL's future profits.

• Renewable Energy Projects: NIKL is making initial investments in renewable energy projects with Emerging Power Inc (EPI), including the Montelago geothermal plant, which is expected to contribute positively to future earnings. These projects offer additional growth opportunities and serve as a buffer against potential nickel price shocks.

• Earnings Forecasts and Target Price: The target price was raised to PHP51.17 from PHP40.37 due to increased pay factors and the inclusion of the Manicani mine. The forecast for FY15F was revised up by 29% to PHP24.1b, which is expected to increase the DCF-based fair value and target price.

• Share Price Performance: The stock has shown strong performance in the last 12 months, with an absolute return of 152.2% and a relative return of 103.8% compared to the market index.

Key Information

• Financial Highlights: NIKL's revenue and core net profit are expected to grow significantly in FY14E and FY15E, with core net profit reaching PHP11,499.7m and PHP24,061.9m, respectively.

• Earnings Growth: Core EPS is projected to increase from PHP4.55 in FY14E to PHP9.52 in FY15E, with a growth rate of 109.2%. The net dividend yield is also expected to increase, reaching 9.6% in FY16E.

• Valuation Metrics: The core P/E ratio is projected to drop from 8.7 in FY14E to 4.2 in FY15E, while the P/BV ratio is expected to decrease from 3.4 to 1.7. The EV/EBITDA ratio is projected to drop from 4.9 in FY14E to 2.0 in FY16E.

• Liquidity and Efficiency: The company's cash conversion cycle is expected to improve, with a decrease from 105.2 in FY12A to 87.7 in FY15E. The current ratio remains stable, and the company is in a net cash position.

• Dividend Cover: The dividend cover is expected to increase from 1.3 in FY12A to 4.9 in FY15E, indicating a stronger ability to pay dividends.

Forecast Changes

• The pay factors for the four operating mines are increased from 19.5% to 22.5%.
• The Manicani mine is assumed to start operations in 2015.
• The risk-free rate increased by 50bps, and the valuation rolled over to FY15F.
• The FY15F net income was revised up by 29% to PHP24.1b, which supports the increase in the target price.

Conclusion

Maybank reiterates a "BUY" recommendation for NIKL PM, citing the potential for continued high pay factors, the revival of the Manicani mine, and the company's diversification into renewable energy projects. The company's financial performance is projected to improve significantly, with increased revenue and net profit, and a strong dividend yield. The target price increase to PHP51.17 reflects the positive outlook for the company's future earnings and the potential for further upside from its renewable energy initiatives.