MMG Limited’s net profit jumped 17x YoY to US$162m in 2024, US$78m above our forecast. The discrepancy mainly came from the higher- than-expected realised metal prices and lower-than-expected costs.
　　We expect the company’s earnings to further surge 1.3x YoY in 2025 on estimated 24% YoY growth in copper output and higher metal prices. We raise our 2025/26 earnings forecasts by 69%/14% respectively after post results adjustments. As the company enters harvest period, we reiterate our BUY call with target price at HK$4.07.
　　Key Factors for Rating
　　The company’s 2024 turnover was US$52m above our forecast on higher-than- expected realised metal prices. Its D&A expenses and the operating costs at Las Bambas were also US$100m and US$124m respectively below our forecasts.
　　These were the key drivers for discrepancy between its earnings and our forecast. Its underlying earnings should be even stronger as it made a US$53m pre-tax impairment at Kinsevere to reflect weaker cobalt price outlook.
　　We expect the company’s EPS to jump 1.3x YoY in 2025 as its expansion projects at Las Bambas and Kinsevere start to deliver. According to the mid-point of its guidance, we estimate its copper output to surge 24% YoY in 2025, probably the fastest growth among major copper producers in the world. We also expect both the average LME spot copper price and zinc price to rise 4% YoY in 2025.
　　In addition, Kinsevere should return to profit in 2025 after posting losses in last two years as it can reduce or even stop the processing of third-party ore with the commencement of sulphide ore mass production. The reduced outsourcing should result in lower costs.
　　The profit of Nickel Brazil, which the company is going to acquire, is resilient.
　　Despite the decline in nickel prices, it remained profitable in 2024 with C1 cost having dropped 11% YoY. This should help to remove the concern among investors that the acquisition will drag the earnings of MMG Limited.
　　Key Risks for Rating
　　Sharp fall in metal prices.
　　Unexpected operational problem at Las Bambas.
　　Valuation
　　Despite the increases in our earnings forecasts, we lower our DCF-based target price from HK$4.12 to HK$4.07. It is because part of the increases comes from lower D&A expenses which are non-cash. We also increase our capex forecasts for the coming three years in view of the company’s higher-than-expected capex budget for 2025.