Nickel Asia Corporation FRI 07 MAY 2021

1Q21 earnings rise on higher selling

prices, in line to meet full year forecast

NIKL reported a net profit of Php584Mil in 1Q21, a turnaround from a net loss of Php89Mil
HOLD
during the same period last year. This represents 10.1% of COL full year forecast. We believe TICKER: NIKL
that while 1Q20 earnings represents only 10.1% of our full year forecast, NIKL is still in line FAIR VALUE: 5.25
to meet our full year earnings forecast for the year, given the seasonality of NIKL’s earnings. CURRENT PRICE: 5.50
UPSIDE: -4.55%
Ore prices beat estimates. 1Q21 ore revenues rose 49.7% y/y to Php2.9Bil, representing
15.2% of our full year forecast. Shipment volume rose 1.4% to 2.82Mil WMT, representing
16.8% of our full year forecast. In terms of pricing, NIKL’s results are better than expected
with average LME price rising 37.2% to US$7.96/lb, representing 114.2% of our full year
forecast, while average contract price increasing 56.5% to US$44.86/WMT, representing
128.9% of our full year forecast.

FORECAST SUMMARY
Year to December 31 (Php Mil) 2017 2018 2019 2020 2021E 2022E
Revenues 15,739 18,648 17,923 21,772 19,694 21,238
% change y/y 11.4 18.5 (3.9) 21.5 (9.5) 7.8
EBITDA 6,888 7,392 6,639 9,348 11,090 12,500
% change y/y 24.2 7.3 (10.2) 40.8 18.6 12.7
EBITDA margin (%) 43.8 39.6 37.0 42.9 56.3 58.9
EBIT 5,408 6,039 5,241 7,917 9,463 10,788
% change y/y 32.8 11.7 (13.2) 51.1 19.5 14.0
EBIT margin (%) 34.4 32.4 29.2 36.4 48.0 50.8
Net income 2,771 3,008 2,685 4,069 6,235 7,018
% change y/y 40.9 8.6 (10.7) 51.5 53.2 12.6
Net margin (%) 17.6 16.1 15.0 18.7 31.7 33.0
EPS (Php) 0.36 0.22 0.20 0.30 0.46 0.51
% change y/y 40.9 (39.7) (10.7) 51.5 53.2 12.6

RELATIVE VALUE
P/E (X) 15.0 24.9 27.9 18.4 12.0 10.7
George Ching
P/BV (X) 1.4 2.5 2.4 2.4 2.1 1.8
ROE (%) 9.8 10.2 8.8 13.0 18.5 17.8
Senior Research Manager
Dividend yield (%) 1.5 3.1 2.0 5.5 5.4 8.3 george.ching@colfinancial.com
so urce: NIKL, COL estimates

Disclaimer: All content provided in COL Reports are meant to be read in the COL Financial website. Accuracy and completeness of content cannot be guaranteed if reports are viewed outside of
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 EARNINGS ANALYSIS I NIKL: 1Q21 EARNINGS RISE ON HIGHER SELLING PRICES,
IN LINE TO MEET FULL YEAR FORECAST

FRI 07 MAY 2021

1Q21 earnings rise on higher selling prices, in line to meet

full year forecast

NIKL reported a net profit of Php584Mil in 1Q21, a turnaround from a net loss of Php89Mil
during the same period last year. This represents 10.1% of COL full year forecast. We
believe that while 1Q20 earnings represents only 10.1% of our full year forecast, NIKL
is still in line to meet our full year earnings forecast for the year. Note that the first
quarter is a seasonally weak quarter for NIKL’s shipment volume. During 1Q20, shipment
volume accounted only for 15.3% of NIKL’s full year shipment volume (compared to
1Q21’s sales volume accounting for 16.8% of full year forecast). Ore revenues rose 49.7%
to Ph2.9Bil, representing 15.2% of our full year forecast, while operating expenses rose
4.6% to Php1.85Bil, representing 18.1% of our full year forecast.

Exhibit 1: Results Summary

% of
in PhpMil 1Q20 1Q21 % Change
COL
Revenues 2,209 3,168 43.4 16.1
Operating income 441 1,317 198.8 13.9
Operating margin (%) 20.0 41.6 - -
Net income -89 584 N/A 10.1
Net margin (%) -4.0 18.4 - -

source: NIKL, Bloomberg, COL estimates

Ore prices beat estimates

1Q21 ore revenues rose 49.7% y/y to Php2.9Bil, representing 15.2% of our full year
forecast. Shipment volume rose 1.4% to 2.82Mil WMT, representing 16.8% of our full
year forecast. In terms of pricing, NIKL’s results are better than expected with average
LME price rising 37.2% to US$7.96/lb, representing 114.2% of our full year forecast, while
average contract price increasing 56.5% to US$44.86/WMT, representing 128.9% of our
full year forecast.

Exhibit 2: 1Q21 shipment results

1Q20 1Q21 % Change % of COL forecasts

Shipment volume (Mil WMT) 2.78 2.82 1.4 16.8
Average contract price (US$/WMT) 28.67 44.86 56.5 128.9
Average LME price (US$/lb) 5.80 7.96 37.2 114.3
Shipment value (Php Bil) 1.94 2.90 49.7 15.2
source: NIKL, COL estimates

COL Financial Group, Inc. 2

 EARNINGS ANALYSIS I NIKL: 1Q21 EARNINGS RISE ON HIGHER SELLING PRICES,
IN LINE TO MEET FULL YEAR FORECAST

FRI 07 MAY 2021

Operating costs rise by 4.6%

NIKL’s 1Q21 operating cost (including GAEX and marketing) rose by 4.6% to Php1.85Bil,
representing 18.1% of our full year forecast. Operating cash cost per WMT rose by 5.2%
to Php550/WMT.

Maintaining HOLD rating

In line with the passage of the CREATE Bill, we are increasing our FY21E earnings forecast
by 7.4% to Php6.2Bil, and our FY22E forecast by 7.6% to Php7Bil. We are also raising our
FV estimate by 5.6% to Php5.25/sh. We are maintaining our HOLD rating on NIKL. 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 250% in the past 12 months, outperforming the PSEi’s 11.4% increase
during the same period. At its current price of Php5.5/sh, there is no more upside to our
FV estimate. .

COL Financial Group, Inc. 3

 EARNINGS ANALYSIS I NIKL: 1Q21 EARNINGS RISE ON HIGHER SELLING PRICES,
IN LINE TO MEET FULL YEAR FORECAST

FRI 07 MAY 2021

Nickel Asia INCOME STATEMENT (IN PHPMIL)

Corporation (NIKL) Revenues

2017
15,739
2018
18,648
2019
17,923
2020
21,772
2021E
19,694
2022E
21,238
% Growth 11.4% 18.5% -3.9% 21.5% -9.5% 7.8%
COMPANY BACKGROUND EBITDA 6,888 7,392 6,639 9,348 11,090 12,500
Nickel Asia Corporation (NIKL) primarily % Growth 24.2% 7.3% -10.2% 40.8% 18.6% 12.7%
EBIT 5,408 6,039 5,241 7,917 9,463 10,788
engages in the business of mining of all
% Growth 32.8% 11.7% -13.2% 51.1% 19.5% 14.0%
kinds of ore, metals and minerals and in EPS 0.36 0.22 0.20 0.30 0.46 0.51
the business of generation, transmission, % Growth 40.9% -39.7% -10.7% 51.5% 53.2% 12.6%
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 2020 2021E 2022E
customers in Japan, China and Australia. Cash & Equivalents 15,572 15,015 16,569 17,331 21,622 29,103
Trade Receivables 905 1,057 1,066 1,439 1,253 1,355
The Company owns four operating mines,
Inventories 3,502 3,744 3,995 2,930 2,767 2,767
namely: Rio Tuba, Taganito, Cagdianao and
Other Current Assets 919 1,165 393 312 312 312
Taganaan sites, all of which are located in PPE 15,388 15,078 16,028 16,890 16,863 16,752
the southern half of the country. Apart from Other Non-Current Assets 9,450 9,973 10,211 10,012 11,297 12,056
which, the Company has five properties in Total Assets 45,737 46,032 48,262 48,913 54,115 62,344
various stages of exploration for nickel. Accounts Payable 7,570 7,665 7,531 8,034 6,294 6,333
ST Debts - 1,492 1,492 1,493 - -
REVENUE BREAKDOWN Other Current Liabilities 2,044 709 897 1,418 1,427 1,420
LT Debts 1,349 1,289 930 893 2,611 2,486
Other Non-Current Liabilities 1,555 1,427 2,280 2,479 1,888 1,888
3.9% Total Liabilities 12,519 12,582 13,131 14,317 12,220 12,127
3.9%
Total Equity 33,218 33,450 35,131 34,597 41,895 50,217
Total Liabilities & Equity 45,737 46,032 48,262 48,913 54,115 62,344

CASHFLOW STATEMENT (IN PHPMIL)

2017 2018 2019 2020 2021E 2022E
Net Income 3,726 4,157 3,691 5,489 8,210 9,235
Depreciation & Amortization 1,480 1,353 1,398 1,432 1,627 1,711
96.1%
96.1% Other Non-Cash Exp (Gains) (198) (348) (10) (190) (1,286) (1,323)
Decrease (Increase) in Working Cap 529 -544 377 1,276 -1,390 -63
Sale of nickel Others Operating Cash Flow 5,537 4,618 5,456 8,006 7,161 9,560
Sale of nickel Others Capex -1,494 -1,144 -2,196 -2,143 -1,600 -1,600
Other Investments 25 25 -89 8 0 564
Investing Cash Flow -1,469 -1,119 -2,286 -2,135 -1,600 -1,036
Proceeds (Payment) Debts -1,816 -88 214 -36 -357 -132
Payment of Cash Dividends -2,556 -3,602 -1,504 -2,685 -4,069 -6,235
Others -1 -1 -1 -1 -1 -1
Financing Cash Flow -4,372 -3,691 -1,290 -2,722 -4,426 -6,367
Change in Cash -304 -192 1,880 3,149 1,135 2,158

COL Financial Group, Inc. 4

 EARNINGS ANALYSIS I NIKL: 1Q21 EARNINGS RISE ON HIGHER SELLING PRICES,
IN LINE TO MEET FULL YEAR FORECAST

FRI 07 MAY 2021

INVESTMENT THESIS: KEY RATIOS

2017 2018 2019 2020 2021E 2022E
Nickel price long term outlook improves
EBITDA Margin (%) 44% 40% 37% 43% 56% 59%
on EV production boom NPM (%) 18% 16% 15% 19% 32% 33%
The long term price outlook for nickel has Current Ratio (X) 2.1 2.0 2.2 2.0 3.3 4.3
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% 45% 36% 34%
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: 1Q21 EARNINGS RISE ON HIGHER SELLING PRICES,
IN LINE TO MEET FULL YEAR FORECAST

FRI 07 MAY 2021

Valuation VALUATION ASSUMPTIONS

Methodology Risk premium 6.5%

Risk free rate 4.0%
Beta 1.10
Cost of equity 11.2%
Cost of debt 2.1%
Tax rate 30.0%
WACC 9.3%

Enterprise value 55,775

Less: (Net debt) / net cash 16,104
Equity value 71,878
Number of outstanding shares (Mil) 13,685
Equity value per share 5.25

COL Financial Group, Inc. 6

 EARNINGS ANALYSIS I NIKL: 1Q21 EARNINGS RISE ON HIGHER SELLING PRICES,
IN LINE TO MEET FULL YEAR FORECAST

FRI 07 MAY 2021

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