9M Revenue Propped by Production as LME Nickel Wanes
Key Takeaways :
▪️INCO’s revenue in 3Q23/9M23 came in at USD278.9mn/USD937.9mn or grew 7.3% YoY, in-line with the consensus FY23E estimate by 74.4% but was a beat to MNCS FY23E estimate by 77.5%. Despite sluggish ASP of USD16.2k/ton (-9.2% YoY), the leap in nickel matte production to 17.9k tons in 3Q23 (3.6% YoY) propped up the revenue.
▪️The 3Q23/9M23 net profit stood at USD52.6mn/USD221.1mn, a 193.2%/31.3% YoY leap, courtesy of a further ease in the coal purchasing price to USD223.5/ton (-23% QoQ) in 3Q23, or USD287.1/ton in 9M23 (-7% YoY). The NPM improved dramatically as a result, expanding to 25.6% throughout 9M23 from 19.3% in 9M22.
▪️The global high interest rates environment that we will most likely weather for a prolonged period of time have already dampened the overall demand for automobiles, in particular the EV segment has indirect demand for nickel matte as the battery raw material. We anticipate LME nickel prices to decline to its 5-year mean of USD17.9k/ton, implying a downside potential for INCO share prices.
▪️The share divestment terms have yet to find resolve, and the prospect of handing-over control to Indonesia seems to have contributed to the brisk foreign outflows, with the foreign no. of shares declining -1.5% YTD, reflected in the 3-month -26.7% share price depreciation.
▪️We recommend HOLD for INCO as the firm’s fair price stands at IDR5,575/share (12.6% upside), and we advise to remain cautious of a correction to the 5-year avg. of IDR4,630/share on sluggish nickel LME and the unresolved divestment terms. The target price implies a PE of 16.7x/16.7x and a PBV of 1.4x/1.3x for FY23E/FY24F. Several key risks to our call include: 1) delays within the project pipelines, 2) surpirses in nickel prices, 3) coal price volatilities, 4) impeded shares divestment progress.
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