INCO
Contact our analyst Revita
27% upside
22 November 2019
Price Rp3,330
Target price Rp4,220
22 November 2019
Price Rp3,330
Target price Rp4,220
Lower production
We lower our 2019F nickel production target to 69000 MT from a previous target of 77,000 MT, in line with INCO’s 9M19 production of 50,531 MT (-7% YoY). We also revise our 2019F production volume target to 71,000 MT. The decrease in production is due to maintenance on one of the PLTUs in 2019 and INCO plans to do maintenance on furnace no. 4 later in 4Q20 which will last for 5 months. Despite volume decline, the ASP (average selling price) increased in line with rising global nickel prices. INCO’s average realized price jumped 9.6% QoQ to US$10,712/MT in 3Q19. This had positive impact on revenue which grew +29.2% QoQ in 3Q19. We believe 2020F ASP will rise further because of the nickle ore export ban which will start early 2020 and will likely lead to an increase in global nickle prices. As a result, we have adjusted our revenue forecast for 2019 and 2020 to US$773.5 mn and US$935.5 mn respectively.
Progress on divestment
On October 11, 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 plan to sign definitive agreements and complete the sale by the end of 2019. The entire transaction will then be completed within 6 months, or by June 2020 once the definitive agreements are signed.
Progress on expansion
The Bahodopi and Pomala projects are both still at the environmental (AMDAL) and other business permits stage. In Bahodapi, INCO will build a FeNi plant to process Saprolite nickel ore which is a main ingredient of stainless steel. INCO has been choosen as a partner by China for this plant and is at the final stage of commercial negotiation. In Pomala, INCO and Sumitomo Metal Mining will build a plant to process Limonite nickel ore which will be the main ingredient for electric vehicle batteries.
Valuation: 27% upside
We downgrade our TP within one year to Rp4220/share with 27% upside. Our recommendation remains BUY.
We lower our 2019F nickel production target to 69000 MT from a previous target of 77,000 MT, in line with INCO’s 9M19 production of 50,531 MT (-7% YoY). We also revise our 2019F production volume target to 71,000 MT. The decrease in production is due to maintenance on one of the PLTUs in 2019 and INCO plans to do maintenance on furnace no. 4 later in 4Q20 which will last for 5 months. Despite volume decline, the ASP (average selling price) increased in line with rising global nickel prices. INCO’s average realized price jumped 9.6% QoQ to US$10,712/MT in 3Q19. This had positive impact on revenue which grew +29.2% QoQ in 3Q19. We believe 2020F ASP will rise further because of the nickle ore export ban which will start early 2020 and will likely lead to an increase in global nickle prices. As a result, we have adjusted our revenue forecast for 2019 and 2020 to US$773.5 mn and US$935.5 mn respectively.
Progress on divestment
On October 11, 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 plan to sign definitive agreements and complete the sale by the end of 2019. The entire transaction will then be completed within 6 months, or by June 2020 once the definitive agreements are signed.
Progress on expansion
The Bahodopi and Pomala projects are both still at the environmental (AMDAL) and other business permits stage. In Bahodapi, INCO will build a FeNi plant to process Saprolite nickel ore which is a main ingredient of stainless steel. INCO has been choosen as a partner by China for this plant and is at the final stage of commercial negotiation. In Pomala, INCO and Sumitomo Metal Mining will build a plant to process Limonite nickel ore which will be the main ingredient for electric vehicle batteries.
Valuation: 27% upside
We downgrade our TP within one year to Rp4220/share with 27% upside. Our recommendation remains BUY.
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