Tuesday, August 9, 2011

International Nickel Indonesia Tbk. - Attractive valuation yet lagging value

by Samuel Securities : INCO

During 1H11, INCO posted a 16% YoY and 9% YoY increase in revenue and net income, so each to U.S. $ 715 million and U.S. $ 238 million.

Meanwhile, production of nickel in matte during 1H11 reached 35.100 tons with an average sales price of U.S. $ 20.052 / metric ton (MT).


INCO performance during 1H11 is under our estimate. 1H11 revenue reflects only 45% of 1H11 estimates while net income is only recorded 39% of our projections.

The YoY increase in revenue and net income respectively 16% and 9% supported by increase in average price by 23% over the same period last year. However, production of nickel in matte for lower 1H11 compared to 1H10 8% YoY due to the company suspended production facilities in 1Q11 due to an earthquake.

In QoQ, 2Q11 revenue and net income rose 22% and 13% supported by increase in nickel production and sales amounted to 12.7% and 20.6% although the average price declined 1.7% QoQ. We see the company managed to increase production to compensate for the decline in production at the end of the year due to redevelopment Electric Furnace # 2. Production until 1H11 according to our estimates this year and reflects 51.6% of the projected 68 thousand tons. We are confident the company can achieve the production target this year.

As planned, Karebbe hydropower projects have been completed about 99% and is in phase with an estimated completion operation in 3Q11.

Action & Recommendation:

When is trading at 7.18x PE'11F INCO are relatively lower when compared with the average peers at 11.93x PE'11F. So, we still maintain the recommendation and Target Price for we see that the company is still very attractive valuations compared to peers. maintain BUY

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