INCO4500

INCO

Contact our analyst Revita

Executing on costs, 41% upside
6 September 2018
Price Rp3190
Target price Rp4,500

Production on track

We lower our nickel production target to 77,000 MT, in line with INCO’s forecast, which is close to their 2017FY production of 76,807 MT.
In 1H18 volume of nickel in matte production declined -3.47% to 36034 MT but was almost 50% of the annual target while nickel in matte deliveries also decreased -3.07% to 36003 MT.
Average realized prices jumped 32.41% to 10.405 US$/MT. As a result, we have adjusted our revenue forecast in 2018 – 2019F to USD. 829.35 mn and USD. 861.35 mn respectively.

Executing on cost competitiveness

INCO is on track to continue improving efficiency and reduce costs as can be seen in 1H18. After the commissioning of Coal conversion project 2 (CCP2) for reduction kiln #2 in April 2018, HSFO and diesel consumption decreased 3.3% and 2.2% respectively QoQ while coal consumption increased 2.6% QoQ in 2Q18. As of 1H18, cost of revenue per metric ton of nickel in matte was slightly lower compared to 1Q18 despite an increase in fuel prices in the quarter.
We estimate cash cost per MT nickle in matte in 2018 will be 7292 US$/MT or 13% yoy due to higher fuel and coal prices.
We adjust our bottom line target in 2018-2019F to US$. 65.9 mn and US$. 72.3 mn respectively.

Progress on expansion projects

Progress on Bahodopi and Pomala projects is still at the feasibility study stage which is estimated to be completed in 4Q18 with further study planned in 2019.
In Bahodapi, INCO will build a Fe Ni plant to process Saprolite nickel ore which is a main ingredient of Stainless Steel.
In Pomala, a project is currently under study to process Limonite nickel ore which will become the main ingredient for electric vehicle batteries.

Valuation: 41% upside

With WACC of 10.52%, we have a one year TP of 4500 / share with 41% upside, our recommendation is BUY

Previously

INCO, 10th Nov 2017