Metal Mining Sector Update - 17 March 2021

METAL MINING SECTOR UPDATE

Brighter Days Ahead

Efficiency Improve the Bottom-Line

•  ANTM reported a 1% YoY growth on ferronickel production to 25,970 mt while gold production went down by -14.78% YoY to 53,756 tOz. Subsequently, INCO also reported a slight growth of 1.71% YoY on nickel matte production to 72,237 mt in FY20.
•  The drop on production and sales volume has caused a -16.34% YoY drop on ANTM’s revenue to IDR27.37 trillion in FY20. Despite the increase on production, INCO’s revenue also fell slightly by -2.21% YoY to USD764,744 due to a -3.29% YoY drop in ASP.
•  On the flip side, both ANTM and INCO managed to cut their expenses in COGS (-19.01% YoY/-3.61% YoY) and Operating Expenses (-30.02% YoY/-97.99% YoY). These efficiency has lifted the Operating Profit Margin for ANTM to 7.42% (vs 2.92% in FY19) as well as INCO’s to 13.58% (vs 11.45% in FY19).
•  Therefore, ANTM managed to book a staggering increase on net profit to IDR1.15 trillion, surging up by +492.90% YoY. INCO followed suit with an impressive 44.28% increase on net profit to USD82,819.
•  Both ANTM and INCO’s FY20 performance are quite in line, reflecting ~95% of MNCS estimates from the average top and bottom line. While we are still expecting MDKA’s FY20 performance.

Gold Fell Deeper, Nickel Slipped, but Tin is Stepping Up

•  Vaccination and economic recovery has weigh gold down this year. Gold has tumbled by -8.79% YTD to USD1,731/tOz. Though on a yearly basis it increased by +14.35% YoY, but still lagging compared to nickel and tin. Several global sentiments especially in the US with the spiking yield and dollar has hammered gold price.
•  Nickel too was grinded lower due to an arising fear over supply disruption in the future. Nickel has slipped by -2.78% YTD to USD16,151/mt, despite the yearly rise of 35.32% YoY and almost touching the USD20,000/mt area. Nevertheless, nickel price has reach it’s six-year high record at USD19,709/mt in February 24, 2021.
•  Tin, on the other hand, managed to climb even higher by +63.40% YoY to USD25,000/mt, being the highest risen hard commodity to date (+23% YTD). The rise was caused by a supply squeeze from London Metal Exchange with low stockpiles, high demand for computer chips as well as batteries and a possible supply threat from Myanmar has boost Tin to a six-year high record.

Overshadowed by the Supply Sentiment

•  The sudden crash on nickel price in the prior weeks was caused by the supply agreement from Tsingshan Holding Group Co. Ltd. The company agreed to provide 100,000 tons of nickel matte, 60% of the supply will goes to Zhejiang Huayou Cobalt Co. Ltd. And 40% goes to CNGR Advanced Material Co. Ltd. for EV batteries purposes starting in October, 2021.
•  Tsingshan also estimate their nickel production would reach 600,000 tons in 2021, 850,000 tons in 2022 and 1.1 million tons in 2023. These amounts to around 24% to 40% of nickel consumption in 2021 to 2023.
•  The sentiments above raise concerns towards oversupply due to the domination of Tsingshan production, hence the collapse in the price. Still, the rising demand over nickel for EV batteries, let alone the gap spread between the supply and consumption is already narrow, these will surely pump the price up. We believe that the price drop will only last a while. And the extra supply is quite welcome to balance the price in the future.

Maintain OVERWEIGHT Recommendation with top Picks: ANTM, INCO and MDKA

Our outlook remains OVERWEIGHT for the metal mining sector as MNCS estimates that these metal will still rise with gold reaching USD2,100/tOz in FY21, followed by nickel to USD20,500/mt, while tin has moved way beyond our estimates at USD22,000/mt. We also maintain our BUY recommendations for: 1) ANTM (TP: IDR2,550) backed by their robust performance and catalyst from the battery consortium; 2) INCO (TP: IDR7,150) due to the increasing ASP and a potential project on Gas Power Plant in Bahodopi will be positive for the future performance; 3) MDKA (TP: IDR2,720) with the inclusion to MSCI and as one of the most renown copper producer, the material sough after nickel for solar panel constructions.

Disclaimer On

ANTM, INCO, MDKA