September 14, 2014

TP for NIKL raised to P60

We have raised our target price for NIKL to P60/sh as we roll over to our upgraded 2015E earnings. The latter takes into account higher nickel price and volume assumptions (including the sale of stockpile which was previously considered as scrap ore).

We now have our 2015E earnings estimates higher by 13% at P13.1b (see Company Update dated 8 Sep 2014). Our new TP offers a 29% share price upside and translates to an undemanding 11.5x 2015E earnings.

Our take: We are expecting more catalysts for NIKL as we believe there is an upside risk to nickel prices abroad on tightening supply especially by next year. Also, Philippine lawmakers have filed bills in both houses of Congress that will require the processing of raw mineral ores within the country before being eligible for export.

While the passage, timeline and implementation of the bill have yet to be ascertained, the filing of both bills has already spooked the market given that Philippine ore exports now account for approximately 85% of Chinese nickel ore imports. LME nickel prices have broken out of consolidation, rising to $8.96/lb yesterday.

The House committee on natural resources approved yesterday its version of the bill subject to style and the incorporation of key details of the bill’s implementation. In light of these developments, we reiterate our BUY rating on NIKL. – WealthSec