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All that Glitters is Green

Last week, exciting news comes from, PT Trimegah Bangun Persada Tbk (NCKL), they have been awarded the TrenAsia ESG Award 2023 in the smelter company category with the "action" predicate.

Source: m.trenasia

This award re affirm NCKL's dedication in consistently contributing positively to sustainable development and as tangible evidence of the company's commitment to ESG responsibilities. It has implemented the Sustainable Development Goals (SDGs) in its five-year roadmap.

Next year, the integrated mining and downstream processing company on Obi Island, will focus on strategic steps to internalize ESG policies at every level of the business process, and improving corporate governance that adheres to national and international standards.

ESG aspects have become a highly important topic across various sectors, including business, government, and investors. Moreover, the awareness regarding sustainability matters in Indonesia is intensifying, not just at the international scale but also among the Indonesian citizens- particularly those directly affected by pollution in Jakarta.

However, Indonesia is actually on the lower spectrum in terms of coal power emission, when compared to other G20 countries. As you can see from these charts- Australia's per capita coal emissions in the past year were over four times the global average, despite a significant rise in solar and wind energy.

China, India and Indonesia – as emerging countries that are home to more than a third of the world’s population – were often accused of being the world’s big coal polluters, but the report showed Australia and South Korea were worse once population was factored in.

In other positive developments for NCKL, there appears to be stability in the nickel price. LME nickel prices have recently reached a one-month high, hitting USD21,000/ton. It's worth noting that the USD20,000/ton mark is considered a significant milestone for recovery, as it closely aligns with the current cash cost for industry players. This suggests that a recovery in nickel prices is becoming more evident.

Source: Sucor Sekuritas

Tightness in nickel market is also triggered by inventory draw-down as inventory depleted more than 32% ytd. By 2022, nickel reserves had increased to around 100 mn mt, with Indonesia and Australia having the largest nickel reserves worldwide.

Parallelly, world nickel demand increased from 1.5 mt in 2010 to 3.03 mt in 2022, almost double in 12 years! It grew at a CAGR of ~5%. Asia is now by far the largest regional market for nickel, representing around 82% of the global demand across various applications, with the most significant growth seen in the usage of nickel in batteries.

Source: Statista

We are also expecting a sales volume growth of 47k tons after the completion of NCKL’s second smelter, in 2H23. Supported by increasing capacity and declining coal costs, our analyst, Andre, forecasts a net profit of Rp6.1tn for 2023, marking a remarkable yoy increase of +31%.

On top of that, in response to our investors' inquiries about NCKL's mine life, it's important to note that with its healthy balance sheet and huge cashflow, NCKL is actively expanding its operations. As evidenced by its recent joint venture with PT Intim Mining Sentosa (IMS) and PT Banyu Bumi Makmur (BBM).

This partnership, named PT Karya Tambang Sentosa (KTS), established on September 1, 2023, with IMS holding a 49% stake, NCKL holding 36%, and BBM holding 15%.

Keep an eye out for NCKL's upcoming developments! We reaffirm our BUY recommendation, with a DCF-based Target Price of Rp1,250, 8.7x 2024F PE, which is intentionally conservative and falls below the average PE ratio of 12.8x for its domestic peers.

Read our full report here:

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