Nickel Asia Corporation MON 09 NOV 2020

9M20 earnings rise on stronger than

expected ore prices, positioned to meet
2020 earnings forecast
For 9M20, NIKL’s net profit increased 19.9% to Php2.3Bil, representing 63.4% of COL forecast.
HOLD
The increase in earnings during 9M20 was primarily due to the higher than expected average TICKER: NIKL
contract price for nickel ore. Ore revenues rose 9.1% to Ph14Bil, representing 87.5% of our FAIR VALUE: 3.95
full year forecast. Operating expenses rose 4.5% to Php10.3Bil, representing 106% of our full CURRENT PRICE: 4.10
year forecast. UPSIDE: -3.66%

Revenues above estimates on stronger than expected ore prices. 9M20 ore revenues
rose 9.1% y/y to Php14Bil, representing 84.8% of our full year forecast. Shipment volume
declined 8.2% to 14Mil WMT, representing 85% of our full year forecast. The decline
in volume was primarily due to production disruption as a result of the ECQ that was
implemented during the month of April and May. The decline in sales volume was more
than offset by an increase in ore prices. In terms of pricing, NIKL’s results are better than
expected with average LME price declining 1.2% to US$5.99/lb, representing 94.6% of
our full year forecast, while average contract price increasing 37.9% to US$30.06/WMT,
representing 111.7% of our full year forecast.

FORECAST SUMMARY
Year to December 31 (Php Mil) 2017 2018 2019 2020E 2021E 2022E
Revenues 15,739 18,648 17,923 16,646 17,850 19,219
% change y/y 11.4 18.5 (3.9) (7.1) 7.2 7.7
EBITDA 6,888 7,392 6,639 8,420 9,486 10,744
% change y/y 24.2 7.3 (10.2) 26.8 12.7 13.3
EBITDA margin (%) 43.8 39.6 37.0 50.6 53.1 55.9
EBIT 5,408 6,039 5,241 6,893 7,876 9,052
% change y/y 32.8 11.7 (13.2) 31.5 14.3 14.9
EBIT margin (%) 34.4 32.4 29.2 41.4 44.1 47.1
Net income 2,771 3,008 2,685 3,630 4,918 5,554
% change y/y 40.9 8.6 (10.7) 35.2 35.5 12.9
Net margin (%) 17.6 16.1 15.0 21.8 27.6 28.9
EPS (Php) 0.36 0.22 0.20 0.27 0.36 0.41
% change y/y 40.9 (39.7) (10.7) 35.2 35.5 12.9

RELATIVE VALUE
P/E (X) 11.3 18.7 20.9 15.5 11.4 10.1 George Ching
P/BV (X) 1.1 1.9 1.8 1.6 1.5 1.3 Senior Research Manager
ROE (%) 9.8 10.2 8.8 11.1 13.6 13.7 george.ching@colfinancial.com
Dividend yield (%) 2.0 4.1 2.7 2.4 3.2 4.4
so urce: NIKL, COL estimates

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 EARNINGS ANALYSIS I NIKL: 9M20 EARNINGS RISE ON STRONGER THAN EXPECTED ORE
PRICSES, POSITIONED TO MEET 2020 EARNINGS FORECAST

MON 09 NOV 2020

9M20 earnings rise on stronger than expected ore prices,

positioned to meet 2020 earnings forecast

NIKL posted 3Q20 net profit increased 57.6% to Php1.9Mil. For 9M20, net profit increased
19.9% to Php2.3Bil, representing 63.4% of COL forecast. NIKL is positioned to meet our
full year forecast of Php3.6Bil for this year given the continued strengthening of nickel
LME and contract prices in 4Q20. Furthermore, company still expects to sell ~ 4.5MIL
WMT of ore shipments in 4Q20, equivalent to 27% of our full year forecast. The increase
in earnings during 9M20 was primarily due to the higher than expected average contract
price for nickel ore. Ore revenues rose 9.1% to Ph14Bil, representing 87.5% of our full
year forecast. Operating expenses rose 4.5% to Php10.3Bil, representing 106% of our
full year forecast.

Exhibit 1: Results Summary

% % % of forecasts
in PhpMil 3Q19 3Q20 9M19 9M20
Change Change COL Consensus
Revenues 6,179 8,472 37.1 13,586 15,115 11.3 90.8 104.8
Operating income 2,139 3,398 58.9 3,582 4,757 32.8 69.0 83.6
Operating margin (%) 34.6 40.1 - 26.4 31.5 - - -
Net income 1,204 1,898 57.6 1,918 2,300 19.9 63.4 92.7
Net margin (%) 19.5 22.4 - 14.1 15.2 - - -

source: NIKL, Bloomberg, COL estimates

Revenues above estimates on stronger than expected ore

prices

9M20 ore revenues rose 9.1% y/y to Php14Bil, representing 84.8% of our full year
forecast. Shipment volume declined 8.2% to 14Mil WMT, representing 85% of our full
year forecast. The decline in volume was primarily due to production disruption as a
result of the ECQ that was implemented during the month of April and May. The decline
in sales volume was more than offset by an increase in ore prices. In terms of pricing,
NIKL’s results are better than expected with average LME price declining 1.2% to US$5.99/
lb, representing 94.6% of our full year forecast, while average contract price increasing
37.9% to US$30.06/WMT, representing 111.7% of our full year forecast.

COL Financial Group, Inc. 2

 EARNINGS ANALYSIS I NIKL: 9M20 EARNINGS RISE ON STRONGER THAN EXPECTED ORE
PRICSES, POSITIONED TO MEET 2020 EARNINGS FORECAST

MON 09 NOV 2020

Exhibit 2: 9M20 shipment results

% % % of COL
3Q19 3Q20 Change 9M19 9M20 Change forecasts
Shipment volume (Mil WMT) 6.2 9.5 53.3 15.3 14.0 -8.2 84.8
Average contract price (US$/WMT) - - 21.8 30.06 37.9 111.7
Average LME price (US$/lb) - - 6.06 5.99 -1.2 94.6
Shipment value (Php Bil) 6.6 9.5 42.9 12.8 14.0 9.1 87.5

source: NIKL, COL estimates

Operating costs above forecast

NIKL’s 9M20 operating cost (including GAEX and marketing) rose by 4.5% to Php10.3Bil,
representing 106% of our full year forecast. Operating cash cost per WMT declined
slightly by 0.4% to Php554/WMT.

Management sees 2020 sales volume at par with 2019

level

Management said that it is cautiously optimistic that shipment volumes for 2020 will
be at par with 2019 level of 18.8Mil WMT, indicating that sales volume for 4Q20 will be
higher compared to the same period of last year, given the favorable weather condition
which enables the company to extend its shipment season. 4Q20 earnings will also
likely be strong given that LME and contract prices have exceeded their respective levels
during 9M20.

Maintaining HOLD rating

We have a HOLD rating on NIKL with a FV estimate of Php3.95/sh. We continue to

like NIKL given that near term prices for nickel will continue to be supported by the
Indonesian nickel ore export ban. Furthermore, we remain positive on the long term
outlook for nickel due to the rising EV battery demand. However, NIKL’s stock price has
increased by 5% YTD, outperforming the PSEi’s 14.5% decline during the same period. At
its current price of Php4.1/sh, there is no more upside to our FV estimate.

COL Financial Group, Inc. 3

 EARNINGS ANALYSIS I NIKL: 9M20 EARNINGS RISE ON STRONGER THAN EXPECTED ORE
PRICSES, POSITIONED TO MEET 2020 EARNINGS FORECAST

MON 09 NOV 2020

Nickel Asia INCOME STATEMENT (IN PHPMIL)

Corporation (NIKL) Revenues

2017
15,739
2018
18,648
2019
17,923
2020E
16,646
2021E
17,850
2022E
19,219
% Growth 11.4% 18.5% -3.9% -7.1% 7.2% 7.7%
COMPANY BACKGROUND EBITDA 6,888 7,392 6,639 8,420 9,486 10,744
Nickel Asia Corporation (NIKL) primarily % Growth 24.2% 7.3% -10.2% 26.8% 12.7% 13.3%
EBIT 5,408 6,039 5,241 6,893 7,876 9,052
engages in the business of mining of all
% Growth 32.8% 11.7% -13.2% 31.5% 14.3% 14.9%
kinds of ore, metals and minerals and in EPS 0.36 0.22 0.20 0.27 0.36 0.41
the business of generation, transmission, % Growth 40.9% -39.7% -10.7% 35.2% 35.5% 12.9%
distribution and supply of electricity to
cities and other localities. The Company BALANCE SHEET (IN PHPMIL)
exports saprolite and limonite ore to 2017 2018 2019 2020E 2021E 2022E
customers in Japan, China and Australia. Cash & Equivalents 15,572 15,015 16,569 18,347 22,694 28,475
Trade Receivables 905 1,057 1,066 1,053 1,132 1,222
The Company owns four operating mines,
Inventories 3,502 3,744 3,995 2,806 2,767 2,767
namely: Rio Tuba, Taganito, Cagdianao and
Other Current Assets 919 1,165 393 393 393 393
Taganaan sites, all of which are located in PPE 15,388 15,078 16,028 16,063 16,014 15,883
the southern half of the country. Apart from Other Non-Current Assets 9,450 9,973 10,211 12,369 13,554 14,254
which, the Company has five properties in Total Assets 45,737 46,032 48,262 51,031 56,554 62,994
various stages of exploration for nickel. Accounts Payable 7,570 7,665 7,531 6,280 6,249 6,283
ST Debts - 1,492 1,492 - - -
REVENUE BREAKDOWN Other Current Liabilities 2,044 709 897 910 910 903
LT Debts 1,349 1,289 930 2,735 2,611 2,486
Other Non-Current Liabilities 1,555 1,427 2,280 1,693 1,686 1,686
3.9% Total Liabilities 12,519 12,582 13,131 11,618 11,455 11,358
3.9%
Total Equity 33,218 33,450 35,131 39,413 45,099 51,637
Total Liabilities & Equity 45,737 46,032 48,262 51,031 56,554 62,994

CASHFLOW STATEMENT (IN PHPMIL)

2017 2018 2019 2020E 2021E 2022E
Net Income 3,726 4,157 3,691 5,194 6,599 7,450
Depreciation & Amortization 1,480 1,353 1,398 1,527 1,610 1,693
96.1%
96.1% Other Non-Cash Exp (Gains) (198) (348) (10) (565) (1,185) (1,221)
Decrease (Increase) in Working Cap 529 -544 377 -48 -72 -56
Sale of nickel Others Operating Cash Flow 5,537 4,618 5,456 6,108 6,952 7,865
Sale of nickel Others Capex -1,494 -1,144 -2,196 -1,561 -1,561 -1,561
Other Investments 25 25 -89 0 0 522
Investing Cash Flow -1,469 -1,119 -2,286 -1,561 -1,561 -1,040
Proceeds (Payment) Debts -1,816 -88 214 -262 -132 -132
Payment of Cash Dividends -2,556 -3,602 -1,504 -1,342 -1,815 -2,459
Others -1 -1 -1 -1 -1 -1
Financing Cash Flow -4,372 -3,691 -1,290 -1,605 -1,947 -2,591
Change in Cash -304 -192 1,880 2,942 3,443 4,234

COL Financial Group, Inc. 4

 EARNINGS ANALYSIS I NIKL: 9M20 EARNINGS RISE ON STRONGER THAN EXPECTED ORE
PRICSES, POSITIONED TO MEET 2020 EARNINGS FORECAST

MON 09 NOV 2020

INVESTMENT THESIS: KEY RATIOS

2017 2018 2019 2020E 2021E 2022E
Nickel price long term outlook improves
EBITDA Margin (%) 44% 40% 37% 51% 53% 56%
on EV production boom NPM (%) 18% 16% 15% 22% 28% 29%
The long term price outlook for nickel has Current Ratio (X) 2.1 2.0 2.2 3.1 3.7 4.5
improved due to the EV production boom. Days Receivable 24 24 24 24 24 24
Investors are anticipating a boom in EVs as Days Inventory 187 187 187 187 187 187
developed countries are starting to create Days Payable 362 362 362 362 362 362
Asset T/O (%) 34% 41% 37% 33% 32% 31%
regulations that would push automakers
to build more EVs. The resulting boom in
the demand for EV batteries as a result of
increased production of EVs is expected to
act as a tailwind for nickel prices in the next
few years. With the increased nickel price,
the company’s revenues will also be able to
pick up and help earnings to grow moving
forward.

Near term prices to be supported by

Indonesian nickel ore export ban
Despite the impact of the Covid-19
pandemic, near term prices for nickel will
continue to be supported by the Indonesian
nickel ore export ban.

COL Financial Group, Inc. 5

 EARNINGS ANALYSIS I NIKL: 9M20 EARNINGS RISE ON STRONGER THAN EXPECTED ORE
PRICSES, POSITIONED TO MEET 2020 EARNINGS FORECAST

MON 09 NOV 2020

Valuation RELATIVE VALUATION

Methodology 2018E
P/E
2019E
EPS Growth
2018E 2019E
Philex Mining Corp. 16.4 27.7 -19.6% -40.7%
Oceanagold Corp. 16.6 17.2 -29.4% -3.5%
HudBay Minerals Inc. 13.1 10.5 -26.9% 24.8%
Zijin Mining Group Co Ltd 14.2 12.7 28.1% 11.7%
Minera Frisco SAB de CV 37.7 5.9 633.3% 540.9%
Nickel Asia Corp. 11.4 11.2 6.9% 1.3%
Median 15.30 11.97 -0.06 0.07

VALUATION ASSUMPTIONS

Risk premium 9.0%

Risk free rate 4.0%
Beta 1.10
Cost of equity 13.9%
Cost of debt 2.1%
Tax rate 30.0%
WACC 11.5%

Enterprise value 26,723

Less: (Net debt) / net cash 15,172
Equity value 41,895
Number of outstanding shares (Mil) 13,685
Equity value per share 3.06

COL Financial Group, Inc. 6

 EARNINGS ANALYSIS I NIKL: 9M20 EARNINGS RISE ON STRONGER THAN EXPECTED ORE
PRICSES, POSITIONED TO MEET 2020 EARNINGS FORECAST

MON 09 NOV 2020

I MP OR TA NT R AT ING DEFINITIONS
BUY
Stocks that have a BUY rating have attractive fundamentals and valuations based on our analysis. We expect the share price to outperform the market in the
next six to 12 months.

HOLD
Stocks that have a HOLD rating have either 1) attractive fundamentals but expensive valuations 2) attractive valuations but near-term earnings outlook might
be poor or vulnerable to numerous risks. Given the said factors, the share price of the stock may perform merely in line or underperform in the market in the
next six to twelve months.

SELL
We dislike both the valuations and fundamentals of stocks with a SELL rating. We expect the share price to underperform in the next six to12 months.

I MP OR TA NT DISC L AIM ER
Securities recommended, offered or sold by COL Financial Group, Inc. are subject to investment risks, including the possible loss of the principal amount invested.
Although information has been obtained from and is based upon sources we believe to be reliable, we do not guarantee its accuracy and said information may
be incomplete or condensed. All opinions and estimates constitute the judgment of COL’s Equity Research Department as of the date of the report and are
subject to change without prior notice. This report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of
a security. COL Financial and/or its employees not involved in the preparation of this report may have investments in securities of derivatives of the companies
mentioned in this report and may trade them in ways different from those discussed in this report.

C O L R E S EAR C H T EAM

APRIL LYNN TAN, CFA

VP & HEAD OF RESEARCH
april.tan@colfinancial.com

CHARLES WILLIAM ANG, CFA GEORGE CHING RICHARD LAÑEDA, CFA

DEPUTY HEAD OF RESEARCH SENIOR RESEARCH MANAGER SENIOR RESEARCH MANAGER
charles.ang@colfinancial.com george.ching@colfinancial.com richard.laneda@colfinancial.com

JOHN MARTIN LUCIANO, CFA FRANCES ROLFA NICOLAS JUSTIN RICHMOND CHENG
SENIOR RESEARCH ANALYST RESEARCH ANALYST RESEARCH ANALYST
john.luciano@colfinancial.com rolfa.nicolas@colfinancial.com justin.cheng@colfinancial.com

ADRIAN ALEXANDER YU KERWIN MALCOLM CHAN

RESEARCH ANALYST RESEARCH ANALYST
adrian.yu@colfinancial.com kerwin.chan@colfinancial.com

C O L F INANC IAL G R O UP, I NC.

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WEBSITE: www.colfinancial.com

COL Financial Group, Inc. 7