KUALA LUMPUR: OM Holdings Ltd(OMH) is positioned to capitalise on the economic recovery in China, according to Kenanga Research.
The research firm said that by the end of 2022, OMH had completed two idle ferrosilicons (FeSi) furnaces to manganese alloys (Mn Alloys) and two other idle FeSi furnaces to metallic silicon (MetSi) furnaces.
"First MetSi furnace is currently undergoing hot commissioning and performance testing.
"The commercial commissioning of MetSi is likely to be in the second quarter (Q2) of the financial year 2023 (FY23).
"Although the installed capacity for the MetSi furnace (30-35 tonnes per day) is half that of the FeSi furnace (65-70 tonnes per day), the net production economics is expected to be the same as MetSi fetches far better margin than FeSi, according to OMH based on their observation of its Chinese peers," Kenanga said in a note.
Overall plant utilisation at OM Sarawak was 75 per cent last year as four Mn Alloys furnaces were undergoing major maintenance coupled with the abovementioned MetSi conversion.
Going into 2023, Kenanga said the company expects the utilisation rate to maintain around the same as eight furnaces will undergo major maintenance in phases throughout the year.
"However, production should improve as skilled workers from China are expected to arrive soon after China's border reopened.
"Meanwhile, the company also said that should help the ASP spike up, it would delay the maintenance work so that it could capture the benefits of a high ASP," said Kenanga Research.
In the second half of 2022 2H22, prices of FeSi and silicomanganese (SiMn) fell 20 per cent and 31 per cent, respectively, to an average of US$1,682 per tonne and US$1,063 per tonne from US$2,112 per tonne and US$1,545 per tonne in 1H22.
"With China's reopening, demand should pick up further, helping to bring ASP higher while higher Chinese costs on strengthening Chinese Yuan should support FeSi price while destocking exercise likely to keep the SiMn price elevated," it added.
Kenanga Research maintained 'Outperform' on the stock with a target price of RM2.53.