INCO
Contact our analyst Revita
14% upside, Hold
16th August 2022
Price Rp 6475
Target price Rp7375
16th August 2022
Price Rp 6475
Target price Rp7375
Strong profit in 1H22
Despite a lower production volume target of 65,000 MT of nickel in matte for 2022, INCO was able to book a strong net profit of USD 82,8 million in 2Q22 higher by +230% YoY, +22% QoQ. The increase in 2Q22’s profit was mainly driven by a higher nickel price, which offset lower production due to the furnace #4 rebuild project. The rebuilt project itself has been completed and the furnace started the heating up process on June 18,2022. INCO revenue was USD 329 million in 2Q22, 58% higher YoY. The average realized price for nickel in matte was USD 24,355/ton, a 85% YoY increase and 40% higher QoQ. We expect 2022F average prices will remain volatile in the near-term due to the increased risk of tight nickel supply after Russia’s invasion of Ukraine, although nickle prices are now down compared to June. With the current prices, we have adjusted our revenue forecasts for 2022-2023F to USD 1,340 million and USD 1,301 million respectively. We believe nickle prices will remain higher than last year but lower than the current price.
Maintain cost
INCO is continuing to maintain its focus on improving productivity and cost efficiency to sustain competitiveness in the long term. Although cost of revenues in 2Q22 increased from higher raw material prices and royalties, INCO still booked EBITDA of USD 163,4 million, higher than 1Q22,’s USD 116,2 million. Fuel costs in 2Q22 increased 21% QoQ, but that’s lower than 2Q21’s increase of 35% QoQ. We calculate 1H22’s cash cost/ton increased 26% YoY. We estimate, that with cost efficiencies, cast/ton in 2023 will decline by -10.7% YoY
Valuation: 14% upside
We maintain a target price within one year of IDR 7,375 due to the rising nickel price despite lower production volume in 2022. With 14% upside, our recommendation is maintained at HOLD.
Despite a lower production volume target of 65,000 MT of nickel in matte for 2022, INCO was able to book a strong net profit of USD 82,8 million in 2Q22 higher by +230% YoY, +22% QoQ. The increase in 2Q22’s profit was mainly driven by a higher nickel price, which offset lower production due to the furnace #4 rebuild project. The rebuilt project itself has been completed and the furnace started the heating up process on June 18,2022. INCO revenue was USD 329 million in 2Q22, 58% higher YoY. The average realized price for nickel in matte was USD 24,355/ton, a 85% YoY increase and 40% higher QoQ. We expect 2022F average prices will remain volatile in the near-term due to the increased risk of tight nickel supply after Russia’s invasion of Ukraine, although nickle prices are now down compared to June. With the current prices, we have adjusted our revenue forecasts for 2022-2023F to USD 1,340 million and USD 1,301 million respectively. We believe nickle prices will remain higher than last year but lower than the current price.
Maintain cost
INCO is continuing to maintain its focus on improving productivity and cost efficiency to sustain competitiveness in the long term. Although cost of revenues in 2Q22 increased from higher raw material prices and royalties, INCO still booked EBITDA of USD 163,4 million, higher than 1Q22,’s USD 116,2 million. Fuel costs in 2Q22 increased 21% QoQ, but that’s lower than 2Q21’s increase of 35% QoQ. We calculate 1H22’s cash cost/ton increased 26% YoY. We estimate, that with cost efficiencies, cast/ton in 2023 will decline by -10.7% YoY
Valuation: 14% upside
We maintain a target price within one year of IDR 7,375 due to the rising nickel price despite lower production volume in 2022. With 14% upside, our recommendation is maintained at HOLD.
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