Outperform Result, Promising ahead
ANTM posted strong results in 2Q20 with net profit of IDR 367 billion (vs: 1Q20 net losses of IDR 282 billion). The strong 2Q20 result above our expectations mainly due increase in refined nickel sales volume (+8% QoQ). For 1H20, ANTM posted net profit of IDR85bn, achieving 51% and 98% of our and consensus FY20F. In 1H20, net profits declined by 80.2% yoy to IDR85bn due to lower sales volume of nickel ore and gold. We estimates 2H20 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 BUY recommendation, TP Rp 950/share. ANTM is currently trading at 0.8x PBV 2020F.
Above expectations 2Q20 results, thanks to strong refined nickel sales volume
ANTMωs 2Q20 net profit came in at IDR 367 bn (vs: 1Q20 net losses of IDR 282 bn) mainly due to: 1) Strong nickel performance with higher ferronickel sales volume and ASP (net margin in 2Q20: 18.9% vs 1Q20: 13.7%), 2). Forex gains of IDR204bn in 2Q20 vs. forex losses of IDR362bn in 1Q20. Bringing the 1H20 net profit to IDR 85bn (-77% YoY), above our and consensus forecast FY20F. Better than expected earnings was due to lower operating expenses (-47% YoY), albeit higher interest cost in 1Q20. Revenue came in at Rp9.2tn (-36% YoY) below our estimates, mainly due to lower nickel ore (-95% YoY) and gold (-33% YoY) sales volume. For 2H20, we expect better earnings, mainly due to higher expected commodity prices. On other hand, ANTM will be the beneficiary of lower oil price (-47% Ytd), as fuel accounts for 37% of total cash cost.
Strong earnings outlook going forward
In mid-April 2020, the Energy & Mineral Resources Ministry prepared the ministerial decree No.11/2020 that mandates the use of Indonesiaωs monthly mineral ore benchmark price as the price floor for transactions. This is positive for ANTM in developing domestic market customers in view of the better pricing. To overcome the nickel-ore export ban, ANTM plans to increase sales volume of domestic nickel ore market. That said, the completion of Pomalaa plant will ramp up ANTMωS capacity, and expect a further improvement in ferronickel production by +10% YoY to 28k tonnes for FY21. In addition, higher nickel prices will trigger better earnings in 2H20 compared to 1H20. We expect nickel prices to gain momentum in the mid to long term following strong demand growth from electric vehicle (EV) batteries. We forecast our nickel price averaging at at US$ 13,000/ton (-7.15% YoY) and US$ 14,500/ton (+11.5% YoY) in FY20 and FY21 respectively.
BUY rating ω fair value at Rp 950/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 950/share, derived from 1.1x PBV 2021F. The stock is currently traded at 0.8X 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.