Trimegah Bangun Persada: Initiating Coverage of Leading Indonesian Nickel Producer

We are initiating coverage of Trimegah Bangun Persada NCKL with a narrow moat rating and fair value estimate of IDR 1,277, indicating a 2023 forward P/E of 7.5 times. Our valuation is slightly higher than its April IPO price of IDR 1,250, representing our view of growth potential for the next five years. Its recent trading price level is around 75% of our fair value estimate.

TBP is the largest pure-play integrated nickel supplier in Indonesia, based on 2022 production volumes, according to AME Mineral Economics. It also has one of the lowest-cost laterite nickel mines owing to its use of open-pit mining. With most of its operations on the Obi Islands, TBP is strategically closer to the major nickel end markets of Asia compared with Australian mining companies. Hence, TBP has an edge over competitors due to its low-cost advantages.

We are optimistic about TBP’s exposure to a surge in battery-grade nickel demand. Following the trend of global energy transitions, AME expects electric vehicle sales to reach 24.2 million in 2027 from 10.5 million in 2022. TBP has continuously ramped up its downstream production capacity after the Indonesian government banned low-grade nickel ore exports.

Our fair value estimate is underpinned by a CAGR of 25.8% for five-year projected revenue and a CAGR of 39.2% for net income. We expect net income to increase faster than the top line due to income from equity investments, namely high-pressure acid leach plants, of which TBP owns 45.1%. Growth was supported by a jump in sales volume after it ramped up capacity rather than increasing average selling prices.