Company Update / Metals / IJ / Click here for full PDF version
Author(s): Ryan Winipta ;Reggie Parengkuan
- We think sulphur shortage situation is likely to be averted as holds 3-4 months' worth of inventory.
- We downgraded our FY26F EPS by -16% to reflect 1Q26 result, higher ore royalty & tax payment, and lower HPAL margin in 2Q26F onwards.
- Share price has declined by -43% from YTD peak; Downgrade TP to Rp1,400/sh on lower EPS and target P/E multiples (7x vs. 9x previously)
Worst-case scenario likely averted with 3-4 months sulphur inventory
We think worst-case scenario for (i.e. inability to find sulphur supply) is likely to be averted as currently holds 3-4 months of sulphur inventory. Nevertheless, its HPAL margin (which supported earnings in 1Q26) is likely to be squeezed as sulphur price have reached US$1,200/t (+118% YTD) while the increase in MHP price to US$17.2k/t (+23% YTD) is unlikely to offset higher sulphur costs, although we expect such price & costs to have lagging effect starting 2Q26F onwards, on inventory-timing. Moreover, the implementation of new HPM formula is likely to be reflected in the form of higher royalty - albeit would positively resulted in higher ore margin; at the expense of HPAL margin. However, there are possibility for further formula revision, based on our check. Note that we think the impact is neutral to slightly positive, as has a majority stake on the upstream vs. minority stake on the HPAL side (i.e. 40% in ONC & 45.1% in HPL).
Downgrade our FY26F/27F NPAT forecast by -16%/-9%
As a result, we downgraded our FY26F/27F NPAT forecast by -16%/-9%, to Rp12.5tr and Rp13.9tr, respectively; with current share price (Rp885/share) implying 4.5x FY26F and 4x FY27F P/E. While we think the valuation is undemanding, we think market confidence on the commodity sector in general (i.e. royalty announcement (report) and single-desk export policy (report)) has yet to be restored, which led to multiples de-rating in the sector. Specifically for , this has also further worsened by unresolved geopolitical situation between US-Iran; which led to rising sulphur costs, which now accounts for 70-75% of HPAL cash costs (excl.by-product credit)
Maintain Buy rating with lower TP of Rp1,200/share
We maintain our Buy rating on as we think valuation is now undemanding at 4.5x FY26F P/E with further policy uncertainty as the only key downside risks for . Our previous TP of Rp2,100/share was initially derived using FY26F 9x target P/E multiples in Feb26; however, since then, a series of event such as US-Iran War (since Mar26), new HPM formula (Apr26), and potential royalty increase & single-desk export policy (May26) has unravelled. As a result, our new TP of Rp1,200/share is derived using a lower 6x P/E target, taking into account robust EPS growth but with downside risks from policy uncertainty & Iran war.
Sumber : IPS