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09 Juli 2020

Metal Mining Sector Update 09 July 2020

METAL MINING SECTOR UPDATE

 

The Rise of the Metallic Era

 

Economic Slump pushes Gold Further Up

The economic slowdown followed by a future recession announcement by the World Economic Forum, as a result of global issues and the Covid-19 outbreak, have raised fear within the market causing investors to shift their assets into less risky and more liquid one as global indices take unsteady turns. Consequently, gold has hit a new high this year which is now traded at USD1,808.89/toz (+29.62% YoY/+19.22% YTD) being the most favorable and the leading commodity in the market. Though, we believe the rise will not last as it is only responding to short term euphoria and sooner or later profit taking will drag the price down. MNCS estimates gold price will be at USD1,750/toz in FY20E while Bloomberg and World Bank have less optimistic view, with price at the level of USD1,680/toz and USD1,470/toz respectively. Nevertheless, we believe that this shiny commodity will always remains as the investor’s safe haven.

 

Clean Energy supports a Higher Demand on Nickel

Movements towards a cleaner energy and less Co2 emission have arisen with the electric vehicles (EV) campaign by the government. Electric vehicles had prove to be more efficient and environmentally friendly as it can reach up to 5x the range of a conventional car with the same energy without producing GHG emission. We believe this will pump up the demand for EV in the near future as government laying out schemes for EV penetration. Bloomberg estimated that nickel demand for EV and the batteries will grew by 26.14%/23.61% (10-year CAGR). This cause has driven nickel price up to USD13,493/mt (+6.08% YoY) and we estimated that nickel price will reach USD14,600/mt in FY20E.

 

1Q20 Performance is In-Line with Estimates

Meanwhile, 1Q20 performance of companies within our coverage (ANTM, MDKA, INCO) is in-line with our estimation (reflecting 23.43% of MNCS estimates). Both MDKA and INCO posted a positive top-line with an increase of 13.17%/38.15% YoY to USD103.79 million and USD174.66 million each in 1Q20. Yet ANTM’s revenue tumbled by -16.35% YoY to IDR5.20 trillion due to a -21.79% YoY drop in gold sale volume. From the bottom line, MDKA posted a net profit of USD14.97 million (-26.26% YoY) followed by INCO’s net profit of USD28.96 million while ANTM recorded a net loss of IDR281.84 billion due to a significant increase (+6,875.20%) in finance cost. We believe the rise in gold and nickel prices will drive these companies performance in the future.

 

Maintain NEUTRAL Recommendation with top Picks: ANTM, MDKA, INCO

We maintain a NEUTRAL outlook for metal mining sectors with top picks: ANTM, MDKA and INCO. We recommend BUY for ANTM (TP: IDR920) and INCO (TP: IDR3,590) along with the rise of gold and nickel prices as we see that both companies  stock prices have dropped by -22.62%/-13.46% YTD and are still undervalued with ANTM currently traded at -0.79 STD/0.86x PBV followed by INCO which is currently traded at -0.27 STD/1.1x PBV. However, we recommend TRADING SELL for MDKA (TP: IDR1,595) due to a potential profit taking from investor since the stock price has rose by 28.50% YTD and is currently traded at +1.25STD/4.19x PBV.

 

Disclaimer On

 

ANTM, MDKA, INCO

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