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Friday, November 2, 2012

3Q12 performance: Hurt by low ASP and ore export tax

by Bahana

 1 November 2012  Bahana Beacon – Result Flash

Aneka Tambang (ANTM-REDUCE-IDR1,280-TP:Under Review)

§        Net profit down 72% y-y but up 57% q-q: ANTM reported 3Q12 net profit of IDR152b (46% of our 3Q12), down 72% y-y but up 57% q-q, which brought 9M12 earnings to IDR628b, down 60% y-y.  This 9M12 set of results represents 50% of our and 53% of consensus full-year estimate.

§        Production pick up in 3Q12: ANTM ramped up its ferronickel production to 5.3k tons, +21% q-q and +2% y-y and nickel ore production to 2.5m wmt, +30% q-q and +29% y-y in 3Q12.  Hence steep decrease of -16% y-y in net selling price to USD7.02/pon resulted in 3Q12 revenue to contract 10% y-y to IDR2.642b, bringing 9M12 revenue to IDR7,134b (-9% y-y), in line with our expectation (76% of our full-year).

§        Margin hurt by low ASP and ore export tax: 3Q12 operating margin decreased to 8.5% on lower nickel price and ore export tax.  Additionally, high percentage of low margin gold trading also dragged down margins.

Outlook: Continued earnings contraction on weak nickel price

Apart from current low metal prices, ANTM is hurt by policy risk, as the government applies 20% nickel ore export tax and will prohibit ore exports in 2014.  This government policy and sluggish nickel price outlook will mean negative earnings growth to persist through 2014 for ANTM.

Recommendation & valuation: Retain REDUCE; Possible downgrades

While ANTM’s share price has underperformed the market by around 35% ytd (exhibit 4), we expect this to persist as we further lower our earnings and target price on the back of this poor 3Q12 earnings.  With the company’s longer-term earnings growth continuing to be in negative territory (exhibit 3), we reiterate our REDUCE rating on ANTM.



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