Company Update

09 Juli 2018


On the Luck in the Metal

1Q18 Revenue growth of metal mining companies supported by higher prices for nickel and tin ANTM booked significant 1Q18 revenue of 247.19% YoY to Rp5.73 trillion, driven by sales volume growth in almost all segments. INCO also grew positively in 1Q18, up 18.42% YoY to US$ 170.46 million, driven by 8.09% YTD increase in nickel price. Meanwhile, TINS revenue fell slightly, by -0.62% YoY to Rp2.04 trillion in 1Q18, as sales volume dropped by 16.69% YoY. These 1Q18 financial achievements reflect our respective estimates: ANTM 36.88%; INCO 21.73%, and TINS 21.23%.


Nickel Outlook: While global nickel supply has declined, global demand is sustained

The prospect of nickel price movement is affected by some positive catalysts as the uncertainty of Philippine nickel supply and Russia's geopolitical condition that potentially prompts higher nickel prices. However, high China steel inventories hamper nickel consumption in China. On the other hand, the use of nickel as a raw material for batteries is increasing, supported by the high import of batteries in China 26.88% YoY in 1Q18. Although China's nickel consumption has the potential to weaken, we assess global nickel consumption will be supported by battery production to meet China battery consumption, especially for battery electric vehicles.


Tin Outlook: Tin prices has limited upside to FY18E

The Chinese government raised its tin mining royalty tax to 3.5%, resulting in China's 2H18E tin production to decline which will potentially lead to less global tin supply, and thus reinforce the metal price. However, we believe that any strengthen of tin price will be limited, as the projected tin demand will not surpassed the weakening of global tin supply. Therefore, we consider that tin consumption will tend to have slow improvement in FY18E, as smartphone sales have not been in line with market expectations: IDC forecasts sales growth to slow to 1% - 1.5% CAGR in FY18E-FY21F.


Neutral Recommendation with Top Picks: ANTM, INCO, TINS

We maintain NEUTRAL outlook on metal mining sector for FY18E. The demand for nickel is still projected to grow solidly, supported by: 1) Uncertainty of global supply which will prop up nickel price; 2) nickel demand will still be maintained, supported by increasing import of batteries to China. However, tin prices will tend to grow moderately, following the rise in China's royalty tax which could cause tin producers to cut production (and thereby lower domestic tin supply). Tin demand is likely to slow, as global smartphone production has below expectation in 1Q18. Our stock picks are ANTM (BUY; TP: Rp1,030), INCO (BUY; TP: Rp3,620), and TINS (BUY; TP: Rp1,250).

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