INCO

Contact our analyst Revita

Executing on costs, 14% upside
10th November 2017
Price Rp3,120
Target price Rp3,550

Lower production target

We lower nickel production target to 78,000 MT, in line with INCO’s forecast, which is close to 2016FY production of 77,581 MT.
Despite lower volume, average price is increasing in line with rising global nickel prices.
This trend can be seen in 9M17, where 9M17 volume of nickel in matte production declined 0.87% to 57494 MT, 74% of the annual target. Average price jumped 9.82% to 7,773 US$/MT.
We have adjusted our revenue forecast in 2017 – 2018F to USD. 667,1 mn & USD. 735.99 mn respectively.

Executing on cost competitiveness

INCO is on track to continue improving efficiency and reduce costs.
In 3Q17, cost of revenue per ton declined 13% to 7,255 USD/MT compared to 2Q17, driven primarily by a recovery in provisions for a decline in inventory value.
EBITDA in 3Q17 was US$34.1mn higher than US$. 10.9 mn in 2Q17 due to higher sales volume.
We adjust our bottom line target in line with the 9M17 result which showed an improving trend. in 2Q17 the company’s net loss was WUS$.(15,32mn)), but INCO managed to book a net profit in 3Q17 of US$. 1,85mn.

Higher TP: 14% upside, but HOLD

With the improvement in cost per ton in 3Q17 despite lower production volume and the stable nickel price, we adjust our target price higher .
With WACC of 11.45%, we have a one year TP of 3550 / share higher than our
previous target of 3345/shares.
With only 14% upside compared to the last closing price, our recommendation is HOLD.