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Sunday, April 24, 2011

International Nickel Indonesia (INCO)

by E-Trading Securities

Nickel price will be determined the most by the consumption, the demand itself comes from various industrial products, such; stainless steel, electroplating, chemicals, and other alloys.

Nickel consumption is dominated by stainless steel sector, which accounts for more than half of the global consumption of nickel. This trend is likely to continue with robust stainless steel demand in near future. Strong demand from stainless steel producers will drive the buoyant global nickel market.

Global nickel consumption is continuously increasing as it is used in more industrialized products, it is anticipated that the global nickel consumption will grow at a CAGR of around 5% during 2011-2014. Developing countries, such as China and India will play a major role in the growth of the global nickel industry in coming years. However, developed countries, such as the US and Germany will also witness strong demand in future as these countries have large and well developed automotive and aerospace industries.


Our View

Based on the financial ratios, INCO’s performance is one of the best compare to its Peers. Revenue growth is the biggest compare to the other stocks, the company’s earnings per share (EPS) growth is above the average, Return on Equity is also above sector’s average, and the Dividend yield is significantly bigger than the other companies in the same industry

In the future, INCO is aiming to raise their production up to 90,000 metric ton by the year of 2015, and with 2 must-take contracts with Vale & Sumitomo, INCO will have no problem in selling their products. From the Financial Ratio, INCO PE ratio is still below Industrial (mining sector) PE ratio. The PE ratio average is still in the level of 28.14x, while INCO PE ratio is still 12.72x. Low PE ratio is determined that the company is still undervalued compare to the other company in the same sector (mining). Compare to more specific sector, the metal mining, INCO’s PE Ratio is still below other company such TINS 15.3x and ANTM 13.01X.

With strong financial performance in 2010, undervalued stock price, strong support from the management and major shareholders, strong demand for nickel in the upcoming futures, and the efficiency in production, we still view INCO with Positive Outlook in the near Future. We are still reviewing on out new target price for INCO, our last target price for INCO was Rp4,721 . The Bloomberg consensus still views BUY recommendation for INCO with Target price of Rp5250.

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