Company Update

09 Juli 2018

PT Vale Indonesia Tbk INCO

Brighter Prospect from Electric Vehicle


1Q18 Performance: Revenue Grew 18.42% YoY, Boosted by Nickel Price Increase 

INCO posted revenues 18.42% YoY higher, to US$ 170.46 million, equivalent to Rp2.28 trillion in 1Q18, along with a 1Q18 nickel price up by 5.77% YTD. This achievement reflects 21.71% of our estimates. INCO succeeded in reporting a net profit of US$ 6.84 million, turned around from a 1Q17 loss of US$ 10.22 million, equivalent to Rp204 billion (1 USD = Rp13,400). We are confident that the bullish trend for nickel price still has potential to sustain momentum, tracking growing global demand for the metal. We estimate INCO will be able to book revenue growth of 24.64% YoY to US$ 784.39 mn in FY18E.


Cost Efficiency through kiln conversion for low-calorie coal

INCO has recently implemented cost efficiency in 1 formerly oil-fired kiln by converting it to burn coal; another kiln conversion is in the works this year, also burning low-calorie GAR 5,700-6,000 Kcal / kg coal. This will certainly put the squeeze on INCO’s production costs and stimulate net profit margin, projected to be up 8.37%, or US$ 65.63 million in FY18E.


The nickel supply deficit is predicted to persist at 53,000 tons of shortfall in FY18E

The nickel price will potentially continue to strengthen, triggered by steadily rising global demand, as the world’s supply is still in a deficit, estimated at 60,000 tons short in FY17. INSG research results show that the acute deficit may potentially linger through FY18E, to 53,000 tons. Sustained high consumption of nickel is foreseen, fulfilling widespread electric vehicle battery  needs (global electric car sales grew by 67% YoY, to 170,000 units in December 2017).


BUY Recommendation with TP: Rp3,620

We consider INCO to have bright prospects over the next few years, driven by changing battery usage trends, with vastly-expanded electric vehicle sales. We recommend BUY for INCO with TP: Rp3,620, implying PE18E / PE19F of 40.90x / 25.26x and PBV18E / PBV19F of 1.42x / 1.35x.



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