Please consider the rating criteria & important disclaimer
INCO enjoyed
the net profit of USD22.5 million or growing by 247.2% y
-
y
and 11.0% q
-
q. Thanks to the soaring ASP to USD 10,880/ton or edging up
10.0% q
-
q and 44.3% y
-
y
. The uptrend of higher global nickel prices is a
logical takeaway for the soaring ASP. We project that the global nickel
prices likely tops USD14,000
-
14,750/ton in 2018
-
2019 in light of the growth
of 5%
-
7% in demand for China’s steel.
Stainless Steel’s Dominance Lingering Still
We oversee that
70% of global nickel supply is currently used by the steel
industry
, while the remaining 5% is used by the Electric Vehicle (EV) battery
industry—making use 99% nickel content. Despite the contrast nickel
supply, the demand for automotive EV battery likely snaps higher within
the long
-
term period.
Intermediate Products Optimized Further
Making best use of stainless steel’s dominance,
INCO likely focuses on
optimizing the production capacity of intermediate products with 78%
nickel content as the catalyst for maximum revenues
. Meanwhile, from
2018 to 2019, its capacity production is stable at the average of 76,000 ton/
year. On the other side, the downside risks of a prolonged dry season most
likely cause production delay due to the shortage of electricity supply from
hydropower plant.
Target Price of IDR5,325
Efficiency at Non
-
Fuel Cost
In 2Q18, on the quarter basis,
the COGS per metric ton slightly slid, albeit the rosier
production of 10.2% q
-
q
. It indicated the success in the efficiency at non
-
fuel cost at the
time fuel prices hiked by 5.0%. Of note, the fuel cost contributed 18.6% to COGS.
Buoyant LME Nickel Prices
The current global nickel prices are lower than its prior 5
-
year prices. In 2012, the nickel
prices soared at USD 21,800/ton. In ahead years, we estimate that the global nickel prices
likely rallies, thanks for positive catalysts: 1) the termination of Philippine
-
based nickel
mine caused detriment to environment, 2) uptrend growth of steel industry in China, 3)
the demand for nickel supplied to the EV battery industry, 4) the Indonesia government
revoking the ban on raw mineral exports.
Stainless Steel to Dominate Demand for Nickel
We estimate the global nickel demand for the EV battery likely grows by 15% per year;
thus, within 5 ahead years,
the total percentage of demand for nickel supplied to the EV
battery edges up 8.7%
(vs. the current growth of 5.0%). The growth remains lighter than
the demand for nickel supplied to the steel industry. In light of the growth of 2.5% per
year, within 5 ahead years,
the total percentage of demand for steel supplied to the
steel industry likely soars 77.3%
(vs. the current growth of 70%).
INCO at A Glance
PT Vale Indonesia Tbk (INCO) whose mine is located in Sorowako, Sulawesi Island is the
biggest nickel producer in Indonesia. Its annual production represents around 4% of the
global total nickel production. It operates an integrated mine and laterite nickel refining.
Of note, 80% of its nickel products are supplied to Vale Canada Ltd, while 20% is supplied
to Sumitomo Metal Co. Ltd.
Nickel Industry in Asia Pacific
Performance Highlights
ASP & Avg.Nickel Price (USD/mt)
|
1Q15
-
4Q18E
Source: Company, NHKS research
Nickel Production & Sales Volume (mt) |
1Q15
-
4Q18E
Source: Company, NHKS research
ASP & Cost per MT (USD/mt)
|
1Q15
-
4Q18E
Source: Company, NHKS research
Sales & Avg.Nickel Price|
1Q15
-
4Q18E
Source: Bloomberg, NHKS research
COGS Composition
|
2Q18
Source: Company, NHKS research
LT Debt & ST Debt (USD mn)|
1Q15
-
4Q18E
Multiple Valuation
Forward EV/EBITDA band
| Last 5 years
Source: NHKS research
Dynamic Forward P/E band
| Last 5 years
Source: NHKS research
Rating and target price update
Target Price Revision
Date
Rating
Target Price
Last Price
Consensus
vs Last Price
vs Consensus
08/14/2017
Hold
2,560 (Dec 2017)
2,550
2,305
+0.4%
+11.1%
11/06/2017
Hold
3,410 (Dec.2018)
3,050
3,021
+11.8%
+12.9%
08/15/2018
Buy
5,325 (Dec.2018)
4,080
5,300
+30.5%
+0.5%
Source: Bloomberg, NHKS research.
Closing and Target Price
Source: NHKS research
Analyst Coverage Rating
Source: Bloomberg
NH Korindo Sekuritas Indonesia (NHKS) stock ratings
1.
Period: End of year target price
2.
Rating system based on a stock’s absolute return from the date of publication
Buy
: Greater than +15%
Hold
:
-
15% to +15%
Summary of Financials
Summary of Financials
DISCLAIMER
This report and any electronic access hereto are restricted and intended only for the clients and related entity of PT NH Korindo Sekuritas Indonesia. This report is only for information and recipient use. It is not reproduced, copied, or made available for others. Under no circumstances is it considered as a selling offer or solicitation of securities buying. Any recommendation contained herein may not suitable for all investors. Although the information here is obtained from reliable sources, it accuracy and completeness cannot be guaranteed. PT NH Korindo Sekuritas Indonesia, its affiliated companies, respective employees, and agents disclaim any responsibility and liability for claims, proceedings, action, losses, expenses, damages, or costs filed against or suffered by any person as a result of acting pursuant to the contents hereof. Neither is PT NH Korindo Sekuritas Indonesia, its affiliated companies, employees, nor agents liable for errors, omissions, misstatements, negligence, inaccuracy arising herefrom.
in USD mn 2016/12A 2017/12A 2018/12E 2019/12E EBITDA/As s ets 6.2% 4.8% 11.9% 13.6%
