INCO
Contact our analyst Revita
55% upside
2 March 2020
Price Rp2450
Target price Rp3810
2 March 2020
Price Rp2450
Target price Rp3810
Maintaining production
INCO is maintaining their production volume target at 71,000 MT of nickle in matte. As we mentioned previously, the decrease in 2019’s production is due to maintenance activites over the Larona Canal Lining and electric furnace no. 4. INCO will revamp furnace no. 4 later in 4Q20 for 5 months. Last year’s lower production volume was offset by a 6% yoy or 21% q0q increase in the average realized price which led revenue to grow at +1% yoy or 29% qoq. We expect the 2020F average realized price will be affected by the corona virus outbreak which will mean weaker global nickle prices compared to our previous forecast. The implementation of a nickel ore export ban which starts in 2020 may help. This year INCO will also continue to work on their cost efficiency. As a result, we have adjusted our revenue forecast for 2019 and 2020 to US$794 mn and US$854 mn respectively.
Progress on divestment
On October 14, 2019, INCO along with Vale Canada Limited (VCL) and Sumitomo Metal Mining Co. Ltd. (SMM) signed a preliminary agreement with PT Indonesia Asahan Alumunium (Persero) or Inalum. All parties agreed to extend the signing deadline for the definitive agreements to the end of 1Q20.
Progress on expansion
The Bahodopi and Pomala projects are expected to come to an investment decision by the end of 2020. Unfortunately the process of securing AMDAL permit and other business license for the future Bahodapi plant where INCO plans to process Saprolite nickel ore (i.e. main ingredient of stainless steel), is likely to be delayed as their choosen partner from China is affected by the current coronavirus outbreak. Meanwhile the AMDAL permit for the Pomala location was scheduled to be received in January 2020. With Sumitomo Metal Mining, INCO will build a plant to process Limonite nickel ore which will be the main ingredient for electric vehicle batteries. Last but not least, the final feasibility study on the Sorowako plant which will increase the Company’s capacity to 90k, is expected to be completed this year.
Valuation: 55% upside
We downgrade our TP within one year to Rp3,810. With 55% upside, our recommendation remains BUY.
INCO is maintaining their production volume target at 71,000 MT of nickle in matte. As we mentioned previously, the decrease in 2019’s production is due to maintenance activites over the Larona Canal Lining and electric furnace no. 4. INCO will revamp furnace no. 4 later in 4Q20 for 5 months. Last year’s lower production volume was offset by a 6% yoy or 21% q0q increase in the average realized price which led revenue to grow at +1% yoy or 29% qoq. We expect the 2020F average realized price will be affected by the corona virus outbreak which will mean weaker global nickle prices compared to our previous forecast. The implementation of a nickel ore export ban which starts in 2020 may help. This year INCO will also continue to work on their cost efficiency. As a result, we have adjusted our revenue forecast for 2019 and 2020 to US$794 mn and US$854 mn respectively.
Progress on divestment
On October 14, 2019, INCO along with Vale Canada Limited (VCL) and Sumitomo Metal Mining Co. Ltd. (SMM) signed a preliminary agreement with PT Indonesia Asahan Alumunium (Persero) or Inalum. All parties agreed to extend the signing deadline for the definitive agreements to the end of 1Q20.
Progress on expansion
The Bahodopi and Pomala projects are expected to come to an investment decision by the end of 2020. Unfortunately the process of securing AMDAL permit and other business license for the future Bahodapi plant where INCO plans to process Saprolite nickel ore (i.e. main ingredient of stainless steel), is likely to be delayed as their choosen partner from China is affected by the current coronavirus outbreak. Meanwhile the AMDAL permit for the Pomala location was scheduled to be received in January 2020. With Sumitomo Metal Mining, INCO will build a plant to process Limonite nickel ore which will be the main ingredient for electric vehicle batteries. Last but not least, the final feasibility study on the Sorowako plant which will increase the Company’s capacity to 90k, is expected to be completed this year.
Valuation: 55% upside
We downgrade our TP within one year to Rp3,810. With 55% upside, our recommendation remains BUY.
Previously
