Vale Indonesia (INCO IJ)
- 45% yoy). Net profit was recorded at US$55.2mn in 9M18 (vs. net loss of - US$19.6mn in 9M17) which we see came in above consensus (75% of FY18F) but inline with our earnings forecast (69%). We believe INCO would be able to book net profit of US$25mn (flat qoq) in 4Q18F on the back of normalized production post maintenance activities in 3Q18, allowing the company to meet our earnings
forecast of US$80mn for FY18F.
O c t- 1 7 N o v -1 7 D e c -1 7 D e c -1 7 J a n -1 8 F e b -1 8 F e b -1 8 M a r- 1 8 A p r- 1 8 M a y -1 8 M a y -1 8 J u n -1 8 J u l- 1 8 J u l- 1 8 A u g -1 8 S e p -1 8 S e p -1 8 O c t- 1 8 INCO-Rebase JCI Index-Rebase
Year To 31 Dec 2016A 2017A 2018F 2019F 2020F
Revenue (US$Mn) 584 629 805 889 976 EBITDA (US$Mn) 145 122 249 295 336 EBITDA Growth (%) (36.2) (16.3) 104.2
18.7
13.6 Net Profit (US$Mn) 2 (15) 80 116 145 EPS (US$Cents) 0.0 (0.2)
0.8
1.2
1.5 EPS Growth (%) (96.2) (901.2) (626.7)
43.9
25.6 Net Gearing (%) (4.1) (8.2) (14.3) (19.3) (21.6) PER (x) 1,052.2 n/m
24.9
17.3
13.8 PBV (x)
1.1
1.1
1.0
1.1
0.9 Dividend Yield (%)
0.0
0.0
0.0
0.0
2.2 EV/EBITDA (x)
14.3
17.7
9.2
8.1
7.3 Source: INCO, IndoPremier Share Price Closing as of : 24-October-2018
E q u it y | I n d o n e s ia | C o m m o d it ie s
80
90 100 110 120 130 140 150 160 170
25 October 2018 Results Note BUY (Unchanged)
Maintain Buy with 47% potential upside. With these inline results we maintain our Buy recommendation for INCO with unchanged DCF-based (WACC: 12.7%; TG: 3%) target price of Rp4,500. INCO revised down its production volumes target to 75k tons for FY18F due to the “Back-House” incident in 3Q18. Nonetheless, without any major maintenance activities in 4Q18, production volumes could reach 20k tons (vs. 18.2k tons in 3Q18). Thus, we believe our earnings forecast of US$80mn for FY18F (4Q18F: US$25mn) would be achievable.
Vale Indonesia
(INCO IJ)
7.1 52w high/low (Rp) 4,660 - 2,610
Stock Data
Target price (Rp) Rp4,500
Prior TP (Rp) Rp4,500
Shareprice (Rp) Rp3,070
Upside/downside (%) +46.6
Sharesoutstanding (m) 9,936 Marketcap. (US$ m) 2,006 Free float (%)
20.5 Avg. 6m dailyT/O (US$ m)
2.3 Price Performance
3M
6M
12M
Absolute (%) -32.2 -2.8
1.7 Relative to JCI (%) -27.6
1.9
Major Shareholders
Nickel industry outlook remains positive. We maintain our nickel price assumption of US$13,000-US$14,000 per ton for FY18F-19F, respectively. To note, despite nickel price volatility, YTD18 nickel price average of US$13,560 per ton remained higher than our assumption for FY18F. We maintain our positive view on nickel industry’s long term outlook as we share the same view with the consensus on potential supply deficit in 2019, which will be supportive for price.
Vale Canada Ltd. 58.7% Sumitomo Metal Mining Co. Ltd.
20.1%
Estimate Change; Vs. Consensus 2018F 2019F
Latest EPS (USD Cents)
0.8
1.2 Vs. Prior EPS (%)
0.0
0.0 Vs. Consensus (%) 9.6 (9.6)
Source: Bloomberg Frederick Daniel Tanggela
PT Indo Premier Sekuritas frederick.daniel@ipc.co.id
Strong results despite challenges Earnings grew 14.5% qoq despite unplanned maintenance in 3Q18. Production has return to normal and would increase in 4Q18. We maintain our price estimates and expect supply deficit in 2019. Maintain Buy rating with 47% upside to our unchanged TP.
Strong 3Q18 earnings. Despite unplanned maintenance in 3Q18, INCO recorded strong earnings of US$25.8mn, up 14.5% qoq and jumped more than 12 fold yoy (due to low base earnings in 3Q17). Sound earnings were mostly backed by higher nickel matte average selling price (ASP) of US$11k per ton (+1.5% qoq,
Production has return to normal. Post the overpressure incident in INCO’s electric furnace system in 3Q18, the management stated that production has now returned to normal without any additional major maintenance activities in 4Q18.
INCO decided to move the planned maintenance activities earlier in 3Q18 (from initial plan in 4Q18) as “bag house overpressure” incident in electric furnace #1 required two weeks shutdown for reparation. Bag House is equipment that captures dust from the furnace to improve emission quality during the smelting process which had been an effective and reliable tool for company’s operations since its installation in 2005 and 2007.
- 62 21 5793 1170
ASP cash cost
10.1
LME nickel price ASP 23% 19%
17% 13% 12% 9%
7%
9M18 Fuels and lubricant Dep Amor Depletion Supplies Employment Service and contracts Coal Other
16.6
18.3
13.6
11.9
13.1
9.5
7.4
8.1
10.8
20
7.3 10.0 9.6
8.9
7.7
6.6
5.5
6.5
6.7
6.9
5
10
15
20 U S $ th o u s a n d p e r to n
25 U S $ t h o u s a n d / t o n
15
Fig. 1: Nickel inventory in LME and SHME Fig. 2: Nickel matte sales volumes Source: Bloomberg
60
Source: INCO, IndoPremier Fig. 3: HSFO consumption per production unit Fig. 4: Nickel Price and INCO’s ASP
Source: INCO Source: INCO, Bloomberg, IndoPremier
Fig. 5: Production cost contribution Fig. 6: ASP and cash costs Source: INCO
Source: INCO, IndoPremier
100 200 300 400 500 600
k t o n s
LME Inventory Shanghai Inventory
77.0
66.8
71.4 77.2 79.5 82.9 79.0 77.6 77.0 76.0
20
40
80 100 k t o n s
10
36.5
35.3
32.4
30.8
20.9
21.3
20.1
21.3
10
20
30
40 2010 2011 2012 2013 2014 2015 2016 2017 b a rr e l/ to n
- 5
Fig. 7: 3Q18 results summary (US$ mn)
9M18
9M17 % Y-Y
3Q18 % Q-Q % Y-Y vs. cons vs. ours
Sales 579.6 448.7 29.2 205.0
0.4
30.7
70.4
72.0 COGS 483.1 459.2 5.2 162.1 (2.9)
8.5 Gross profit 96.5 (10.5) nm
42.9 15.2 470.8
74.7
65.4 Opex
8.8
8.1
8.1
3.0
4.8
12.8 Other income
2.9
1.9
52.4
1.0
36.1
41.1 Other expenses
10.2
6.3
63.0
4.6 93.5 300.6 Operating profit 80.4 (23.0) nm
36.3 10.9 721.8
57.4
59.2 Finance costs
5.3 6.0 (12.4) 1.6 (9.0) (13.3) Pretax income 75.1 (29.0) nm
34.7 12.0 nm
72.7
68.4 Tax (19.6) 9.4 nm (8.7) 2.5 nm Net Income 55.2 (19.6) nm
25.8 14.5 nm
75.2
68.6 Gross margin 16.6 (2.3)
20.9 Operating margin 13.9 (5.1)
17.7 Pretax margin 13.0 (6.5)
16.9 Net margin 9.5 (4.4)
12.6 Nickel sales volumes (k tons)
54.6 57.7 (5.5) 18.6 (1.0) (9.8)
70.9 ASP (US$/ton) 10,621 7,773 36.6 11,041
1.5 44.9 105.5
Source: INCO, IndoPremier
Year To 31 Dec (US$Mn) 2016A 2017A 2018F 2019F 2020F Income Statement
Net Revenue 584 629 805 889 976 Cost of Sales (550) (623) (658) (690) (733) Gross Profit
34 7 147 199 242 SG&A Expenses (12) (11) (12) (13) (14) Operating Profit 22 (5) 136 186 228 Net Interest (7) (2) (3) (2) (1) Forex Gain (Loss)
3
8 Others-Net (12) (24) (23) (26) (28) Pre-Tax Income 5 (23) 110 158 198 Income Tax (3) 8 (29) (42) (53) Minorities Net Income 2 (15) 80 116 145
Balance Sheet
186 222 345 461 530 Cash & Equivalent 147 166
80
88
97 Receivable 130 118 106 117 129 Inventory
137 92 227 251 275 Other Current Assets 599 597 759 917 1,031
Total Current Assets 1,533 1,494 1,451 1,421 1,423
Fixed Assets - Net Goodwill
94
94
88 97 106 Non Current Assets
2,225 2,185 2,297 2,435 2,560 Total Assets
36
37
37
37
37 ST Loans
64
61 96 106 Payable
31
32
27
30
33 Other Payables Current Portion of LT Loans 132 129 151 163 175
Total Current Liab.
73
36
36
36
36 Long Term Loans 186 200 210 220 231 Other LT Liab.
391 365 397 419 443 Total Liabilities 414 414 414 414 414
Equity 1,420 1,405 1,486 1,601 1,703
Retained Earnings Minority Interest
1,835 1,819 1,900 2,016 2,117 Total SHE + Minority Int. Total Liabilities & Equity 2,225 2,185 2,297 2,435 2,560
Source: INCO, IndoPremier
Year to 31 Dec 2016A 2017A 2018F 2019F 2020F Cash Flow
2 (15) 80 116 145 Net Income (Excl.Extraordinary&Min.Int) 121 125 113 110 108 Depr. & Amortization
(116) (12) 126 (8) (9) Changes in Working Capital
(124) 136 (9) (125) (22) Others
(116) 234 311 93 222 Cash Flow From Operating
(59) (87) (64) (89) (119) Capital Expenditure
2
3
2
3
4 Others (57) (84) (61) (86) (116)
Cash Flow From Investing (37) (37)
Loans Equity
(44) Dividends
(20)
9
5
6
6 Others (57) (28)
5 6 (38) Cash Flow From Financing
(230) 122 255
12
69 Changes in Cash
Financial Ratios
5.8
1.0
18.3
22.3
24.8 Gross Margin (%) 3.8 (0.8)
16.9
20.9
23.4 Operating Margin (%) 0.9 (3.7)
13.6
17.8
20.3 Pre-Tax Margin (%) 0.3 (2.4)
10.0
13.0
14.9 Net Margin (%) 0.1 (0.7)
3.6
4.9
5.8 ROA (%) 0.1 (0.8)
4.3
5.9
7.0 ROE (%) 0.2 (0.7)
4.3
5.9
7.0 ROIC (%)
70.2
90.5
55.6
34.4
34.5 Acct. Receivables TO (days)
0.0
0.0
0.0
0.0
0.0 Acct. Receivables - Other TO (days)
4.7
5.0
5.9
6.2
6.0 Inventory TO (days)
49.7
36.7
41.1
48.6
50.3 Payable TO (days)
0.0
0.0
0.0
0.0
0.0 Acct. Payables - Other TO (days)
6.0
4.0
3.8
3.6
3.4 Debt to Equity (%) 0.4 (1.0)
0.0
0.0
0.0 Interest Coverage Ratio (x) (4.1) (8.2) (14.3) (19.3) (21.6)
Net Gearing (%)
Source: INCO, IndoPremier
Head Office PT INDO PREMIER SEKURITAS Wisma GKBI 7/F Suite 718 Jl. Jend. Sudirman No.28 Jakarta 10210 - Indonesia p +62.21.5793.1168 f +62.21.5793.1167
INVESTMENT RATINGS
BUY : Expected total return of 10% or more within a 12-month period HOLD : Expected total return between -10% and 10% within a 12-month period SELL : Expected total return of -10% or worse within a 12-month period ANALYSTS CERTIFICATION.
The views expressed in this research report accurately reflect the analysts personal views about any and all of the subject securities or issuers; and no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the report.
DISCLAIMERS
This research is based on information obtained from sources believed to be reliable, but we do not make any representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendations contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is not and should not be construed as an offer or a solicitation of an offer to purchase or subscribe or sell any securities. PT. Indo Premier Sekuritas or its affiliates may seek or will seek investment banking or other business relationships with the companies in this