Equity Research
Tuesday , 29 Oct 2019 02:08
PT VALE INDONESIA TBK
Better outlook led to solid earnings
INCO’s booked strong net profit in 3Q19 of US$ 26.5mn (vs. US$ 6.2mn net loss in 2Q19). We believe INCO’s financial performance will improve as indicated by +8% and +21% higher ASP in 4Q19 and 2020F, respectively. Hence, we maintain BUY for INCO at Rp 4,500/ share implies 2020F PER target of 25.1x and EV/EBITDA target of 6.7x
Higher nickel prices, boost earnings
INCO reported 3Q19 result in line with our estimates, booked net profit of US$ 26.4 million (vs 2Q19: net loss US$ 6 million) bringing 9M19 net profit to US$ 0.2 million (vs 9M18 net profit US$ 55.2 million). Note that the higher net profit was because of higher revenue amounts US$ 214.2 million in 3Q19 (+29.2% QoQ, +5% YoY). The strong top line growth in 3Q19 was backed by a higher sales volume for nickel in matte of 19.998 metric ton (+17.9%QoQ, +8%YoY). We foresee plenty of room for improvement due to higher expectations of global tin price translate to higher ASP. At the moment, we forecast global nickel price averaging at US$ 14,000/ton (+3.7%YoY) and US$ 17,000/ton (+17.4% YoY) in FY19 and FY20 respectively.
Double digit growth in production and sales volume
INCO recorded 3Q19 Nickel in matte production improved to 19.820 tons (+12% QoQ, +9% YoY). This brought total 9M19 production of 50.531 tons, representing 71% of FY19F target of 71,000 mt. For sales volume, INCO recorded 3Q19 nickel in matte of 19,998 Mton or +18% QoQ and +8% YoY. In our view, the QoQ production hike after the incident in electronic furnace system in 1Q19 has now normalized without any additional major maintenance activities. We believe INCO could maintain this strong operational performance into 4Q19, we expect total sales volume in FY19 to reach 70,658 mt.
Lower cash cost thanks to lower commodities price
We notice that INCO’s HSFO usage decreased to 992.769 barrel in 9M19 (-15.1% YoY) after maintenance activities back to normal in 1Q19. Moreover, as fuel represents around 30% of INCO’s total COGS, we lowered our cash cost estimates in 2020F by 12.5% to US$5,587/ton due to a recent drop in global coal and oil benchmark price. We assume coal price of US$ 80/ton and brent oil price of US$60/bbl in 2020F.
Maintain BUY – new TP at Rp 4,500 per share
This solid 3Q19 result is certainly a good indicator that the company to book positive earnings in FY19. We still like INCO as a top pick for metal mining sector. We obtain the fair value of INCO at Rp 4,500 per share implies 2020F PER target of 25.1x and 2020F EV/EBITDA target of 6.7x based on WACC assumption of 10.6%. At yesterday’s closing price, the stock is trading at 32.6x PER 2020F and 11.6x EV/EBITDA 2020F, which offers 26.4% upside potential.
Key Risk: 1) the future supply/demand dynamics; 2) lower than expected nickel price; 3) changes in government policies.
Financial Summary
|
|
(US$ million)
|
2017A
|
2018F
|
2019F
|
2020F
|
2021F
|
|
Revenue
|
629
|
777
|
721
|
863
|
905
|
EBITDA
|
121
|
187
|
184
|
301
|
338
|
Net profit
|
(15)
|
61
|
47
|
97
|
114
|
EPS (Rp)
|
(21)
|
87
|
67
|
140
|
166
|
PER (x)
|
(172.62)
|
40.95
|
51.47
|
25.10
|
21.25
|
PBV (x)
|
1.44
|
1.29
|
1.26
|
1.20
|
1.13
|
EV/EBITDA (x)
|
20.61
|
11.85
|
11.58
|
6.73
|
5.46
|
Dividend yield (%)
|
0.00
|
(0.00)
|
0.00
|
0.00
|
0.00
|
RoE (%)
|
(0.84)
|
3.27
|
2.48
|
4.849
|
5.48
|
|
|
|
|
|
|
|
|
|
|
Source: Company data and Lotus Andalan Research
|
|
Equity Research
Tuesday , 29 Oct 2019 02:06
PT ANEKA TAMBANG TBK
3Q19 SOLID EARNINGS
ANTM reported solid earnings in 3Q19 on the back of strong nickel price led to solid operating results. Net profit became Rp 195bn (+0.7% QoQ, -31.8% YoY). We still like ANTM with a promising outlook for 2H19 earnings. We retain our BUY recommendation with TP Rp 1,300 as we roll forward our valuation basis to FY20F. ANTM is currently trading at 24.5x and 16.8x of PER in 2019F and 2020F.
Solid 3Q19 result, supported by ferronickel and gold segment
ANTM reported 3Q19 net profit of Rp195bn (-31.8% yoy/+0.7% qoq), bringing the 9M19 net profit to Rp 561bn or 63% and 52% of our and consensus forecast. We see the solid earnings in 3Q19 mainly due: 1) higher ferronickel sales volume to 6.546 TNi (+8.5 QoQ, +4.4 YoY) despite lower nickel ore sales volume (-26% QoQ, -27.1% YoY) 2) strong gold sales volume to 10,971 (+18.9 QoQ, +27.2 YoY) 3). Higher ASP’s of ferronickel and nickel ore increased by 11% and 2% QoQ respectively. On YoY basis, net profit decline -11.1% YoY mainly due, higher trading activities increased purchases of precious metals (+22.9% YoY) this accounted 76% of total COGS and higher tax rate of 38.4% in 9M19 (vs 9M18: 32.4%).
Strong earnings outlook going forward
The completion of Pomalaa plant will ramp up ANTM’S capacity by +66% YoY to 40k tonnes per annum with sales of 31k tonnes in 2019, rising gradually in the following years. We estimate the revenue to increase by 9.9% YoY to Rp 31.7 trillion with net margin of approx. 4.1% YoY in 2020F. For gold segment, we forecast our gold sales volume to increase by 15.45% YoY, partly due to investors seeking more stable investment given a prolonged US – China trade tension. ANTM has also expanded their gold market into India, UEA and Malaysia to expand market penetration and we believe company will continue to be innovate after successes with batik-themed and Hello Kitty products.
Focused on downstream segment as long-term driver
After the acquisition of ICA from Showa Denko, the CGA Tayan is scheduled to commence operation in 4Q19. We forecast ANTM bauxite ore production to resume, reaching around 107k tons with the same of total sales. Meanwhile, to increase its capacity, ANTM will build Smelter Grade Alumina Refinery (SGAR) in Mempawah, which is targeted to operate in 2020. SGAR’s project potentially produce 1 mn tonnes alumina per annum and can be a raw material to produce 500k ton allumunium. This could remove the dependency of imports alumina and potentially increase bauxite production in 2020F to 3 million wmt (+150 % YoY).
BUY rating – fair value at Rp 1,300/share
We retain our BUY recommendation with TP Rp 1,300 as we roll forward our valuation basis to FY20F. The stocks implies 23.8x and 6.7x PER and EV/EBITDA 2020F, while the stock is currently traded at 24.6x and 4.9x PER and EV/EBITDA 2019F. With upside potential of 42.1%.
Key risks: 1) Significant drop in nickel and gold prices; 2) lower than expected ferronickel and gold sales volume; 3) changes in government policies.
Financial Summary
|
(Rp billion)
|
2017A
|
2018F
|
2019F
|
2020F
|
2021F
|
Revenue
|
12,654
|
25,242
|
28,840
|
31,707
|
34,034
|
EBITDA
|
1,374
|
2,557
|
2,558
|
3,209
|
6,822
|
Net profit
|
137
|
874
|
896
|
1,309
|
3,814
|
EPS (Rp)
|
6
|
36
|
37
|
54
|
159
|
PER (x)
|
161.08
|
25.15
|
24.55
|
16.79
|
5.77
|
PBV (x)
|
1.19
|
1.11
|
1.07
|
1.00
|
0.85
|
EV/EBITDA (x)
|
5.55
|
5.00
|
4.98
|
4.75
|
4.28
|
RoE (%)
|
0.74
|
4.43
|
4.34
|
5.97
|
14.81
|
|
|
|
|
|
|
|
Source: Company data and Lotus Andalan Research
|