April 23, 2014

NIKL earnings estimates and TP upgraded

In a note we released yesterday, we have raised our earnings forecast of Nickel Asia Corp (NIKL) by 51% to P4.6b (EPS: P1.80) in 2014E and by 38% to P6.2b (EPS: P2.47) in 2015E. This is an offshoot of the upgrade in our nickel price assumptions to US$8.50/lb from US$7.50/lb for 2014E and US$9.50/lb from US$8.50/lb for 2015E.

We also gathered that NIKL was also able to realize much higher prices for its direct ore sales to customers in China and Japan. Sales of saprolite ore are no longer governed by the Japanese formula which is based on the 3-month trailing average nickel prices but are now benchmarked against buying prices in China which is currently priced at a premium of about 50% versus LME prices.

As a result of our higher earnings forecasts, we also revised up our DCF-based target price to P31/sh from P24.25/sh previously on higher average nickel price assumptions and earnings forecasts. Our TP implies a 29% upside on the share price and translates to an undemanding 2015E P/E multiple of 12.5x vs. a 127% estimated earnings growth for 2014E and 37% for 2015E. - WealthSec