Bayon Financial

Graeme Cunningham

Independent Insight Provider

Bayon Financial provides industry and company analysis focusing on mid and small cap equity research coverage across a range of sectors including mining, financials and telecoms.

Equity Bottom-Up

BHP Group Ltd operates as an international resources company. The Company offers mineral exploration and production, including coal, iron ore, gold, titanium, ferroalloys, nickel, and copper concentrate, as well as petroleum exploration, production, and refining. BHP Group serves customers worldwide.

<ul>
<li>BHP has abandoned a last minute bid for Anglo American, which will likely see the latter's planned merger with Teck with proceed </li>
<li>We consider other potential targets for BHP, all copper, concluding that most seem unlikely for now, especially with the company stating a focus on organic growth</li>
<li>BHP faces the risks of a decline in iron ore (consensus) and copper (non-consensus) prices in our view, while it trades at premium to the sector and above our DCF </li>
</ul>


BHP has abandoned a last minute bid for Anglo American, which will likely see the latter's planned merger with Teck with proceed 
We consider other potential targets for BHP, all copper, concluding that most seem unlikely for now, especially with the company stating a focus on organic growth
BHP faces the risks of a decline in iron ore (consensus) and copper (non-consensus) prices in our view, while it trades at premium to the sector and above our DCF 


BHP: Few Viable Targets After Anglo Bid Abandoned

Rio Tinto Limited is an international mining company.  The Company has interests in mining for aluminum, borax, coal, copper, gold, iron ore, lead, silver, tin, uranium, zinc, titanium dioxide feedstock, diamonds, talc and zircon. Dually-listed company with RIO LN.

<ul>
<li>The Q3/25 production update was taken well by the market, with iron ore output near flat yoy, copper jumping 10%, and moderate growth for aluminum, alumina and bauxite</li>
<li>Some reorganization has started under new CEO Simon Trott, with IOC reported with the core iron ore segment, and two divisions, Borates and Iron and Titanium, placed under review </li>
<li>We see risks from major iron ore market shifts and a potential cyclical downturn hitting copper and aluminum, and it could be fully valued on our below-consensus metal price estimates </li>
</ul>


The Q3/25 production update was taken well by the market, with iron ore output near flat yoy, copper jumping 10%, and moderate growth for aluminum, alumina and bauxite
Some reorganization has started under new CEO Simon Trott, with IOC reported with the core iron ore segment, and two divisions, Borates and Iron and Titanium, placed under review 
We see risks from major iron ore market shifts and a potential cyclical downturn hitting copper and aluminum, and it could be fully valued on our below-consensus metal price estimates 


Rio Tinto: Production in Q3/25 Robust, Metal Price Risks Remain

<ul>
<li>Press reports indicated that China could temporarily suspend purchases of BHP’s iron ore from Jimblebar, which could account for a mid-single digit percentage of revenue</li>
<li>The UK press reported Geraldine Slattery will likely be BHP’s new CEO, who currently heads BHP's Australian operations and has over three decades with the company</li>
<li>BHP is 4% above our DCF, its 2.8x P/B is not clearly excessive or attractive, and we see risks to iron ore, copper and coal prices from a broad slowdown</li>
</ul>


Press reports indicated that China could temporarily suspend purchases of BHP’s iron ore from Jimblebar, which could account for a mid-single digit percentage of revenue
The UK press reported Geraldine Slattery will likely be BHP’s new CEO, who currently heads BHP's Australian operations and has over three decades with the company
BHP is 4% above our DCF, its 2.8x P/B is not clearly excessive or attractive, and we see risks to iron ore, copper and coal prices from a broad slowdown


BHP: Press Reports of China Iron Ore Suspension, New CEO

PT Vale Indonesia Tbk produces nickel in matte, an intermediate product, from lateritic ores at its integrated mining and processing facilities near Soroako, Sulawesi

<ul>
<li>INCO's rally could slow as the industry outlook remains weak and its ongoing major operational transformation may not be fully derisked and priced in until well into 2026 </li>
<li>Q2/25 remained challenging with revenue inline but a major net income miss, as weak nickel offset rising volume and strong cost control, with margins and ROE near zero</li>
<li>While the 2025E P/B of 0.9x has priced in a large degree of industry distress, we still see risks of stagnation for the prices of both nickel and INCO</li>
</ul>


INCO's rally could slow as the industry outlook remains weak and its ongoing major operational transformation may not be fully derisked and priced in until well into 2026 
Q2/25 remained challenging with revenue inline but a major net income miss, as weak nickel offset rising volume and strong cost control, with margins and ROE near zero
While the 2025E P/B of 0.9x has priced in a large degree of industry distress, we still see risks of stagnation for the prices of both nickel and INCO


Vale Indonesia: Struggle Against Weak Nickel Continues

Shin-Etsu Chemical Co., Ltd. produces and distributes synthetic resins and other chemical products such as fertilizers. The Company also manufactures electronic materials such as semiconductor silicon, synthetic, and rare earth quartz. Shin-Etsu Chemical operates in Japan and overseas.

<ul>
<li>Shin-Etsu Chemical’s fiscal Q1/26 results were inline with expectations, with EBIT down -12.6% yoy as margins declined yoy for all of its divisions </li>
<li>However, FY26E guidance disappointed markets, with a -14.4% decline in operating income, well below consensus’ already weak 0.6% forecast, and the stock fell -9.5%</li>
<li>Shin-Etsu has trades at a P/B premium to the Japan chemical sector even with a lower ROE, providing limited valuation support especially given a weak operating outlook </li>
</ul>


Shin-Etsu Chemical’s fiscal Q1/26 results were inline with expectations, with EBIT down -12.6% yoy as margins declined yoy for all of its divisions 
However, FY26E guidance disappointed markets, with a -14.4% decline in operating income, well below consensus’ already weak 0.6% forecast, and the stock fell -9.5%
Shin-Etsu has trades at a P/B premium to the Japan chemical sector even with a lower ROE, providing limited valuation support especially given a weak operating outlook 


Shin-Etsu Chemical: Full Year Guidance Disappoints

Independent Insight Provider, Bayon Financial

Mr. Cunningham is a CFA Charterholder with over 15 years of experience as an equity research analyst, mostly on the sell side at investment banks, including Goldman and Jefferies, and with some time on the buy side. He has covered the consumer, telecoms, financials, energy and mining sectors, with a focus mainly on Southeast Asia, including Thailand and Vietnam.