OMH - First Day Listing (Industry: Industrial Material)

Posted by Damien88 at Jun 21, 2021 10:30 PM | Report Abuse

Investment Summary (UOBKH Initial Coverage Jun 2021):

1) Eco-friendly (ESG play) and the world’s lowest-quartile-cost manganese smelter operator.
2) Prime beneficiary of the commodities supercycle, amid strong demand fuelled by the economic recovery and structural supply shortage created by the global decarbonisation trend.
3) a major recovery play in 2022, as herd immunity against COVID-19 will allow production to recover.


Production /Covid Risk
OMH’s annual production capacity of FeSi is 170K ton and MnSi is 330K ton. Before Covid shutdown, OMH was producing at 75% capacity ie FeSi at 130K ton and 250K ton.

OMH production was totally shutdown on 28 May 2021 (which also coincide with Malaysia countrywide lockdown for 1 month) due to Covid cases among its workers. The smelter is expected to gradually re-start production by end Jun/early July with ramping up of production towards 75% capacity once more workers finished the quarantine period and Covid workers recovered and resume work.

Sarawak government is actively pursuing vaccination for the whole state and expected full vaccination by end August. They have also set up vaccination centres in smelter plants like OMH to speed up the process. The company should be able to bring in more China workers towards 4Q2021 as Malaysia targets to open up its economy by end Oct 2021 with more people being vaccinated.


Alloy Price Risk:

Both FeSi and MnSi has seen substantial price jump since Dec 2020, with FeSi prices up 50% and MnSi up 40%. The alloy price increases are in comparable to Copper (up 30%), Iron Ore (up 50%) and Coal (up 50%) since Dec 2020.
Current GPM for FeSi and MnSi are 50% each – hitting multi-years high.

GPM could reach a high of US$150m-200m at 75%-100% production level at current alloy prices.

Both FeSi/MnSi prices are expected to remained high due to (i) post-pandemic recovery, “ultra-loose” monetary and fiscal policies, stronger inflation and more aggressive environmental policies around the world (ii) China’s aggressive action to restrict output of the ferroalloy industry to control pollution and combat climate change (ii) More infrastructure stimulus (US$1.5-2T) from US, and further G7 B3W infrastructure initiatives of US$1T to counter China’s BRI for the developing nations.

Share Liquidity Risk

OMH suffers from lacking of liquidity in the past many years mainly due to the lack of publicity, IR coverage, and institutional investor interests which result in the depressed share price and gross underpricing for OMH.

At current alloy prices, OMH could easily report A$100m profit at 75-100% production level which may be achieved in 2021 and definitely in 2022 when full production is achieved. This is only forward PE of 3-5x, which is way below market PE and definitely grossly undervalued when compared to Press Metal (PE 80x) and Lynas (PE 60x) and Ferroglobe (loss making but market cap at US$900m).

OMH Bursa listing on 22 June 2021 should be the key catalyst event that will propel the stock price to a new high, which could drive its PE valuation closer to that of Press Metal and other peers. Bursa listing will bring OMH into the spotlight and the path of liquidity flow as we see the profits for OMH rolling in from 2021/22 onwards as the commodity sector continue to shine.