KUALA LUMPUR: Kenanga Research expects OM Holdings Ltd's net profit to jump 53 per cent year-on-year (YoY) for financial year 2022 (FY22) supported by better average selling price (ASP) mix and corporation efficiency. 

This will be on the back of a 10 per cent contraction in revenue due to cessation of OM Qinzhou (OMQ) in China and Bootu Creek Mine. 

However, Kenanga Research said OM  Holdings' net profit for FY23 was expected to fall 8.0 per cent YoY on the back of a 13 per cent decline in revenue as ASP falls. 

"Nonetheless, higher production volume of 16 per cent will help to mitigate the fall in ASP. 

"Meanwhile, the strong ASP in the past two years has helped to strengthen its balance sheet, with net gearing set to improve to 0.30 time by FY23 from 2.09 times five years ago in FY17A," said its analyst Teh Kian Yeong in a note. 

OM Holdings is the largest manganese and silicon smelter in Southeast Asia. 

It has two smelters namely OM Sarawak (OMS) in Samalaju, Sarawak and OMQ.

Meanwhile, its 100 per cent-owned Bootu Creek Mine in Australia had ceased operations last December while it also has an effective 13 per cent interest in the Tshipi Borwa Mine in South Africa.

Teh said the skyrocketing power cost had led to some European smelters cutting production as their cash cost is higher than spot prices while strict environmental requirements have forced some Chinese smelters to shut down production.

"This will continue to keep FeSi and manganese alloys (Mn Alloys) prices elevated given supply-demand imbalance, which will benefit OM Holdings due to its low energy cost. 

"Besides, low carbon smelter OMS makes it a good spot for environmental, social and governance initiatives," he said. 

Ever since the pandemic, OM Holdings had OMQ stopping production since last December as skyrocketing power-tariffs had rendered operation unviable while OMS was undertaking conversion and major maintenance of existing furnaces. 

By this year end, the firm noted that total plant output would be 340,000-360,000 tonnes per annum as opposed to 470,000 tonnes per annum pre-Covid. 

"With four more conversion and two new furnaces on the pipeline, this will raise total capacity to 610,000- 640,000 tonnes per annum which helps to drive future volume growth," said Teh. 

Kenanga Research initiated coverage on the stock with an "Outperform" call and target price of RM2.54.