INCO
Contact our analyst Revita
9.6% upside, Hold
14th November 2022
Price Rp 7275
Target price Rp7970
14th November 2022
Price Rp 7275
Target price Rp7970
Double digit profit growth
As of 9M22, net profit increased by +36% YoY compared to a faster increase in the 1H22 YoY. As of 3Q22, Cost of revenue increased by +38% YoY due to an increase in fuel and lubricants expenses by +47% YoY in line with the increase in world energy prices. As of 9M22, royalty expenses also rose significantly +91% YoY. In response to the sharp rise in coal prices this year, as of September INCO decided to switch energy sources for burners from coal to HSFO. During this period, HSFO, diesel, and coal prices increased by 12%, 20%, and 14%, respectively. Coal use as of 3Q22 decreased compared to 2Q22 while HSFO use was 40% higher per metric ton nickle in matte. INCO has revised its 2022 nickle in matte production volume target to the range of 61,000-62,000 MT due to delays in the completion of the furnace rebuild project. We have adjusted our revenue forecasts for 2022-2023F to USD 1,257 million and USD 1,301 million respectively.
Maintaining cost
INCO is continuing to maintain its focus on improving productivity and cost efficiency to sustain comptitivenes in the long term despite higher cost of revenues in 3Q22 from energy expenses and royalties. As of 3Q22, INCO booked EBITDA of USD 103.0 million, 37% lower than EBITDA in 3Q22 of USD163.4 million due to lower nickel prices. Fuel and lubricant costs in 3Q22 increased 99% YoY. We calculate 9M22’s cash cost/ton increased 31% YoY. We estimate, with cost efficencies, cast/ton in 2023 will decline by -13.82% YoY.
Valuation: 9.6 % upside
Based on 9M22 result, We revise our target price within one year to IDR 7,970 due to the rising nickel price despite lower production volume in 2022. With only 9.6% upside, our recommendation is maintained at HOLD.
As of 9M22, net profit increased by +36% YoY compared to a faster increase in the 1H22 YoY. As of 3Q22, Cost of revenue increased by +38% YoY due to an increase in fuel and lubricants expenses by +47% YoY in line with the increase in world energy prices. As of 9M22, royalty expenses also rose significantly +91% YoY. In response to the sharp rise in coal prices this year, as of September INCO decided to switch energy sources for burners from coal to HSFO. During this period, HSFO, diesel, and coal prices increased by 12%, 20%, and 14%, respectively. Coal use as of 3Q22 decreased compared to 2Q22 while HSFO use was 40% higher per metric ton nickle in matte. INCO has revised its 2022 nickle in matte production volume target to the range of 61,000-62,000 MT due to delays in the completion of the furnace rebuild project. We have adjusted our revenue forecasts for 2022-2023F to USD 1,257 million and USD 1,301 million respectively.
Maintaining cost
INCO is continuing to maintain its focus on improving productivity and cost efficiency to sustain comptitivenes in the long term despite higher cost of revenues in 3Q22 from energy expenses and royalties. As of 3Q22, INCO booked EBITDA of USD 103.0 million, 37% lower than EBITDA in 3Q22 of USD163.4 million due to lower nickel prices. Fuel and lubricant costs in 3Q22 increased 99% YoY. We calculate 9M22’s cash cost/ton increased 31% YoY. We estimate, with cost efficencies, cast/ton in 2023 will decline by -13.82% YoY.
Valuation: 9.6 % upside
Based on 9M22 result, We revise our target price within one year to IDR 7,970 due to the rising nickel price despite lower production volume in 2022. With only 9.6% upside, our recommendation is maintained at HOLD.
Previously
