Maybank (ZP) 28 Jun 2018
INCO BUY TP 4400
Vale Indonesia (INCO IJ) 2Q18 preview: ASP and Vols still feeding through
Remains positive 2Q18 earnings could be better than 1Q18 due to improvements in nickel market. We see upside potential to our 2018 forecast should the current nickel prices be sustainable. Maintain BUY on INCO with a TP of IDR4,400, based on 1.7x FY18F P/BV, in line with its long-term mean. We expect strong nickel prices and improving earnings to support share price.
2Q18 earnings preview: up QoQ We expect 2Q18 earnings to continue its positive QoQ uptrend, which began in 3Q17. We forecast 2Q18 earnings to reach USD15.5m (+126.4% QoQ) and a reversal from the net loss of USD15.3m in 2Q17. We forecast 1H18 bottom line to be USD22.3m (1H17: -USD21.5m), which accounts for 48.8% of our FY18 forecast of USD45.7m.
Higher ASP and volume to drive QoQ growth We think the main drivers for 2Q18 earnings would be higher production, higher ASP and lower tax rate. We forecast production to grow 18.5% QoQ to 20,020t post planned maintenance in 1Q18. ASP would increase 9.1% QoQ to USD10,784/tonne because of improvements in the global nickel market. Total cost, in our estimate, would increase +0.9% QoQ to USD9,640/tonne due to higher commodity prices, but we think the cost increase could be offset by higher ASP and volume. 2Q18 effective tax rate would come down to 25% due to higher provision in 1Q18 (27.1%).
Sensitivity analysis _Nickel prices currently stand at ~USD15,000/tonne, which is higher than our 2018 assumption of ~USD13,200/tonne and as such could provide upside to our forecast should the current prices be sustainable. Every 1% change in our 2018 assumption would change our bottom-line forecast by 12.7%._
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