Nickel Industries Limited

Company Overview: Nickel Industries Limited (ASX: NIC) is a nickel producer with two major production centres at IWIP (Indonesia Weda Bay Industrial Park) and IMIP (Indonesia Morowali Industrial Park) in Indonesia. Besides operating the Hengjaya nickel (HNI) and Ranger nickel (RNI) rotary kiln electric furnace (RKEF) projects, NIC has commissioned ~4 RKEF lines on the Angel nickel project (ANI) in IWIP.

NIC Details

Recent Growth Investments & Drivers in Spotlight-

Recent Material Updates, Source: Analysis by Kalkine Group

PT Angel Nickel Industry, the operator of the ANI project, has received the Industrial Business Licence (IUI) and entered export contracts in May 2022. It is planned to start commercial sales at the end of May 2022. Till May 9, 2022, ANI project has delivered ~3,852 tonnes of nickel metal (in NPI) as all lines are advancing to accelerate production levels as expected.

ANI Project Production Ramp-Up, Source: Analysis by Kalkine Group

Growth in Key Metrics of Q1FY22 (Ended 31 March 2022): Q1FY22 saw an increase in the average realised price of NPI (nickel pig iron) from ~US$18,545/ tonne in Q4FY21 to ~US$ 19,368/ tonne, up by ~4.4% Q-o-Q and rise in the key financial metrics posted as below.

Comparative Growth Q1FY22 Vs. Q4FY21, Highlights; (Analysis by Kalkine Group)

Targeting Higher Production: NIC is increasing its production capacity by adding four next-generation RKEF lines each on the ONI and ANI projects. Oracle nickel project (ONI) is presently under construction at IMIP.

Monthly Production Trend & Addition of ANI Lines from Feb 2022, Highlights; (Analysis by Kalkine Group)

Key Metrics: NIC posted an increase in gross margin in FY21 versus FY20. As per the latest company reports, EBITDA margin stood at ~42% in Q1FY22 versus ~40% in Q1FY21 and ~37% in Q4FY21. 

Gross Margin Trend; (Analysis by Kalkine Group)

Top 10 Shareholders:

The top 10 shareholders together form ~51.53% of the total shareholding. Decent Investment International Pte. Ltd.  and PT Karunia Bara Perkasa hold a maximum stake in the company at ~11.28% and ~6.63%, respectively.

NIC faces the following business challenges while operating the mining and exploration business.

Key Risks, Source: Analysis by Kalkine Group

Outlook: NIC plans to triple production and financial profile in the next 12 months and aims to be one of the top 10 nickel producers in the world. With the addition of RKEF lines (from four to 12) on the ONI and ANI projects, NIC will have a nickel nameplate capacity of ~78,000 tonnes from ~24,000 tonnes in FY21.

Valuation Methodology: P/E Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of NIC gave a negative return of ~12.49% in the past three months and a negative return of ~22.22% in the past six months. The stock is currently trading lower than the 52-weeks average price level band of $0.885 - $1.790. The stock has been valued using the P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ mean P/E multiple, considering the COVID-19 disruptions, a relatively higher debt-to-equity ratio, and acquisition risks. For this purpose of valuation, a few peers like Strandline Resources Ltd (ASX: STA), IGO Ltd (ASX: IGO), BHP Group Ltd (ASX: BHP), and others have been considered. Considering the current trading levels, growth in top line and EBITDA, attributable Ni metal production in Q1FY22, robust nickel prices and demand outlook, capacity expansions & growth investments for tripling EBITDA & production profile, an indicative upside in valuation, associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $1.050, down by 1.408%%, as of 15 June 2022.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical issues prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.

NIC Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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