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Thursday , 12 Nov 2020 07:45

Glimmer of hope
ANTM posted strong results in 3Q20 with net profit of IDR 751 billion (vs. 2Q20 net profit of IDR 367 billion). The strong 3Q20 result above our expectations mainly due higher nickel ore volume and price. For 9M20, ANTM posted net profit of IDR 836 bn, achieving 75.4% and 71.5% of our and consensus FY20F. We estimates 4Q20 earnings to improve, on the back of: 1) Improving LME nickel prices supported by increasing demand; 2) Monthly mineral ore benchmark will increase domestic ANTM for nickel ore sales; 3) A stronger Rupiah appreciation. We retain our HOLD recommendation, TP Rp 1.400/share. ANTM is currently trading at 1.5x PBV 2020F.

Above Expectations 3Q20 Results, Thanks to Strong Refined Nickel Sales Volume
ANTMýs 3Q20 net profit came in at IDR 751 bn (+104.8% QoQ) mainly due to: 1) Strong nickel performance with higher domestic market for ore sales volume to 1.04 wmt (vs.0 wmt in 2Q20) 2) Higher ferronickel selling price +24,5% QoQ and nickel ore (+3% QoQ and +20% YoY) 3) Lower operating costs particularly in G&A expenses -16% QoQ. Thus, revenue has more than doubled to IDR 8,811 bn (+119% QoQ) in 3Q20. For 9M20 ANTM reported net profit to IDR 836 bn (+30.3% YoY), supported by lower production costs with -10% YoY decline in ferronickel cash cost to USD 3.34/lb and a fall in the tax rate to 25% in 9M20 from 35% in 9M19. The results accomplishing 74.5% and 71.5% of our and consensusý full-year estimates.

Strong Earnings Long-Term Going Forward
ANTMýs ferronickel capacity is expected to grow upon completion of its ferronickel plant in East Halmahera. That said, the completion of Pomalaa plant will ramp up ANTMýS capacity, and expect a further improvement in ferronickel production to 40k tonnes for FY22 (vs. Now: 13K tonnes). In addition, higher nickel prices will trigger better earnings in 2H20 compared to 1H20. Given strong nickel ore sales volume in 3Q20, we expect our nickel ore sales estimate of 4.2mn wmt to be achievable. We expect nickel prices to gain momentum in the mid to long term following strong demand growth from electric vehicle (EV) batteries. In addition, we believe ANTMýs gold sales volume target of 18,000 ý 19,000 kg for 2020 can be exceeded, as the 9M20 gold sales volume has reached 87% of our previous 2020ýs forecast. LME nickel prices have risen 11% YTD and 41% from the trough this year, making it the best performing metal. We forecast our nickel price averaging at at USD 13,000/ton (-7.15% YoY) and USD 14,500/ton (+11.5% YoY) in FY20 and FY21 respectively.

BUY Rating ý Fair Value at Rp 1.400/share
We revise up our ferronickel sales volume and nickel ore sales volume estimates for 2020F and 2021F by an increase of 8% higher nickel price forecast. We retain our TP of Rp 1.400/share, derived from 1.4x PBV 2021F. The stock is currently traded at 1.5X PBV 2020F.

Key risks: 1) Significant drop in nickel and gold prices; 2) lower than expected ferronickel and gold sales volume; 3) changes in government policies.

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