Equity Update |Sept 30, 2021

Vale Indonesia Tbk (INCO)

Nickel prices increased to touch above USD 20,000, boosting
INCO's revenue performance

Nickel commodity prices for Jan-Sept period was in a positive

trend and had touched the highest level at USD 20,392 Mt.
COMPANY RESEARCH
However, the increase in nickel prices seems to be restrained
UPDATE due to demand from China's stainless-steel sector, as the main
driver of global nickel demand, seems to be starting to
decrease due to weak stainless demand, but nickel demand for
ADD the electric vehicle sector is still strong.
•
12M Target Price IDR 5,165 Per share
Global nickel production is expected to increase in the final
vs. Consensus Price -20.9%
vs. Last Price +10.6%
quarter of 2021 and the first quarter of next year, thus
preventing the spikes in nickel prices.

Based on a report as of July 2021, INCO has realized a Capital

Stock Data expenditure of US$ 72 billion or 55.3% of the total budget of
Ticker Code INCO US$ 130 million. The CAPEX is allocated for a number of
Sector Mining projects, including for rebuilding furnace 4.
Market Cap (IDR.Tn) 46.40 Tn
Shares Issued (Bn) 9.94 Bn
Nickel production volume during the first semester of 2021 was
recorded at 30,246 MT, 17% lower than the same period the
52-Week High (IDR) 7,100 previous year of 36,315 MT. This means that the realization of
52-Week Low (IDR) 3,400 INCO's production during the first six months of 2021 reflects
47.3% of INCO's nickel production target this year which is
64,000 MT.
Net Sales 22F (Kiwoom) US$ 986 Mn
Vs. Net Sales (Consensus) -0.5% INCO's revenue in 2022 is estimated at US$ 986 Mn, or a 12.9%
growth compared to the estimated revenue in 2021. Next
year's revenue increase is assumed that Furnace 4 will be able
Price Performance – Year to Date%
to operate in the second half so that it will be able to boost
INCO Basic Industry
nickel production volume by 73,500 Mt with an ASP of US$
10% 13,255 Mt.
0%
INCO’s Target Price at IDR 5,165/share, this Price reflects an
-10%
EV/EBITDA multiple of 11.95x. Our INCO target price is
-20% upgraded to IDR 5,165 (from IDR 5,000 previously).
-30%
Figure 1. Financial Highlight
-40%
in Millions of US$ 2020A 2021F 2022F 2023F
Jan/21 Mar/21 May/21 Jul/21 Sep/21
Net Sales 764.7 873.7 986.4 1,003.9
Source : Indonesia Stock Exchange Gross Profit 124.3 148.5 157.8 160.6
Net Profit 82.8 95.4 97.8 100.3
Net Profit Margin 11% 11% 10% 10%

IKE WIDIAWATI Volume Sales (Mt) 72,846 64,802 74,420 77,964

ike@kiwoom.co.id Volume Production (Mt) 72,237 64,000 73,500 77,000
ASP (US$/Mt) 10,498 13,482 13,255 12,876

Source: Bloomberg, Company, IDX and Kiwoom Research

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 Equity Update |Sept 30, 2021

THE WORLD ECONOMY AND NICKEL COMMODITY CONDITIONS

I. The Economy in Q3-2021 Facing Challenges From Wave 3 of Covid-19

The start of wave 3 in early June 2021, caused some countries to finally
re-implement activity tightening. This condition had an impact on
various sectors which were again depressed, such as the hotel sector,
transportation, and various other sectors as a result of the multiplier
effect. This surge in wave 3 cases is very tragic in the midst of the hard
efforts made by various countries to rise.

On the other hand, PPKM policy implemented by Indonesian

government still not able to control the infection rate, so in the end
government decided to extend PPKM period. In the third quarter,
Indonesian economy is likely to contract again

Meanwhile, in the fourth quarter, there is a moment of Christmas and

new year. If the government makes the wrong policy, it can increase
the number of COVID-19 cases, this is certainly dangerous for the
economy.

II. Events, Trends, and Issues (Nickel price movers)

• The government plans to ban the export of nickel processed
products with levels of 30% to 40% in order to encourage the
downstream nickel chain in the country. Currently, Vale
Indonesia is the only one that can produce nickel with levels
above 70%.
• Until 2024-2025, Indonesia’s nickel industry will still focus
supplying the demand for the stainless-steel sector.
• It is estimated that nickel commodity prices will move flat in
response to the increase in nickel ore supply towards pre-covid.
• China's stainless steel sector demand, the main driver of global
nickel demand, appears to be starting to decrease due to
weaker stainless demand, but Nickel demand for the electric
vehicle sector remains strong.
• Nickel’s volume production will increase in the final quarter of
2021 and first quarter of next year.

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 Equity Update |Sept 30, 2021

Figure 2. Nickel Market Price (US$/Mt tons)

20000 The
announcement
19000 of 2020 ban on
Indonesia Low Demand,
18000 high supply

17000

16000 The first

announcement of The impact of
15000 Indonesia’s Covid-19 is starting The demand for raw materials
potential nickel ore to show for the manufacture of electric
14000 ban starting 2020 cars continues to increase
amid supply hampered by the
13000 pandemic.

12000 Covid-19 brought

production to a halt supply
11000 has been controlled so that
nickel market price
rebounded.
10000
Sep/2018 Jan/2019 May/2019 Sep/2019 Jan/2020 May/2020 Sep/2020 Jan/2021 May/2021 Sep/2021
Source: Bloomberg and Kiwoom Research

III. In 2021, The Projection of nickel market price

The current movement of Nickel prices is still in line with our previous
estimate in INCO’s report in Q1 2021 that nickel commodity prices this
year will continue their upward trend and are profitable for the
world's nickel miners.

In 2021, Nickel price is estimated to be able to maintain its

strengthening within the current range, but we don’t expect that
nickel price will be able to reach above level of US$ 22,000/Mt this
year. We predict that nickel movement this year will still be in an
uptrend and profitable for the world's nickel miners.

On the other hand, we estimate in the future that the stainless-steel

industry will still be the largest nickel consumer and hence a major
driver of nickel prices in the short to medium term. By 2030, final use
of nickel will be 46% for stainless steel and 37% for batteries.

IV. Coal prices increased and becoming a negative sentiment for INCO
because INCO requires coal of 5.5 tons – 5.8 tons for one tonne of
nickel produced.

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 Equity Update |Sept 30, 2021

IN 2021, INCO'S PROJECTED VOLUME OF NICKEL PRODUCTION LOWER

THAN PREVIOUS YEAR DUE TO REBUILDING FURNACE 4

I. INCO is scheduled for rebuilding one of the electric furnace or

furnace 4. Based on a report as of July 2021, INCO has used its CAPEX
US$ 72 million or 55.3% of the total budget of US$ 130 million. CAPEX
is allocated for a number of projects, including for rebuilding furnace
4. The projects include improvements to the furnace roof, furnace
body, electrode component, feeding system, matte and slag tapping
and electrical system. The redevelopment agenda for Furnace 4 is
carried out as part of the operations strategy in support of the
ambition to produce 90,000 tonnes.

II. Our projection of INCO's Nickel production volume is still the same
as the report we previously published because the assumptions have
not changed. The rebuilding of Furnace 4 which will be carried out in
2021 will lead to a lower production target in 2021. In 2021, INCO's
sales are targeted at US$ 873 million from the previous target at US$
832 million and for nickel production of 64,000 Mt.

IN 2022, INCO's PROJECTED VOLUME OF NICKEL PRODUCTION

ABOVE 73,000 MT

Rebuild of Furnace 4 is estimated to be completed in the first half of

2022, so that nickel production volumes can be increased in the
second half. As a result of this increase in production targets, the
demand for fuel (coal) as an energy source is also expected to
increase.

Coal commodity prices experienced significant increase to US$ 192.2

tons on September 24, 2021, this price was the highest since 2009.

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 Equity Update |Sept 30, 2021

Figure 3. Nickel Sales Volume Matte (Mt) Figure 4. Production volume vs growth%

84,000 77,643 75,631 77,964 84,000 76,807 74,806 77,000

72,044 72,846 74,420 73,500
76,000 76,000 71,025 72,237
64,802 64,000
68,000 68,000
60,000 60,000
52,000 52,000
44,000 44,000
36,000 36,000
28,000 28,000
20,000 20,000
12,000 12,000
4,000 4,000
(4,000) (4,000)
2017A 2018A 2019A 2020A 2021F 2022F 2023F 2017A 2018A 2019A 2020A 2021F 2022F 2023F
Source: Company, IDX and Kiwoom Research Source: Company, IDX and Kiwoom Research

Figure 5. Average Realize Price (US$/Mt) Figure 6. Revenue from Nickel sales (US$ Mn)
1,200.0
15,000 986.4
14,000 13,482 1,000.0 873.7
12,876
776.9 782.0 764.7
13,000 800.0
12,000 10,855
600.0
11,000
10,000 400.0
9,000 8,106
200.0
8,000
7,000 -
2017A 2018A 2019A 2020A 2021F 2022F 2023F 2018A 2019A 2020A 2021F 2022F
Source: Company, IDX and Kiwoom Research Source: Company, IDX and Kiwoom Research

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 Equity Update |Sept 30, 2021

MULTIPLE VALUATION
INCO’s Target Price at IDR 5,165/share, this Price reflects an EV/EBITDA multiple of 11.95x. Our INCO target
price is upgraded to IDR 5,165 (from IDR 5,000 previously).

Figure 7. Current vs 5yr Average Historical Multiple (EV/EBITDA)

INCO IJ Equity Multiple (BF EV/EBITDA) Multiple Average (5 Years)

'+1 Standard Deviation from Multiple Average '-1 Standard Deviation from Multiple Average
16
14
12
10
8
6
4
2
0
9/20/2016 9/20/2017 9/20/2018 9/20/2019 9/20/2020 9/20/2021

Source: Bloomberg and Kiwoom Research

Kiwoom Sekuritas Guide to Investment Ratings

OVERWEIGHT : Stock Return > +15% over the next 12 month (excluding dividend)
ADD : Stock Return, range between +10% to +15% over the next 12 month (excluding dividend)
NEUTRAL : Stock Return, range between -10% to +10% over the next 12 month (excluding dividend)
REDUCE : Stock Return, range between -10% to -15% over the next 12 month (excluding dividend)
UNDERWEIGHT : Stock Return > -15% over the next 12 month (excluding dividend)

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 Equity Update |Sept 30, 2021

FINANCIAL EXHIBITS Figure 8. Financial Statement

Income Statement
2020A 2021F 2022F 2023F
(US$. Mn)
Net Sales 764.7 873.7 986.4 1,003.9
Company profile -640.4 -725.1 -828.6 -843.3
Cost of Revenue
PT Vale Indonesia Tbk is a subsidiary of Vale, a global 124.3 148.5 157.8 160.6
Gross Profit
mining company headquartered in Brazil. The Other Oper Income 1.3 1.5 1.7 1.7
company with the ticker code INCO was originally Operating Expense 17.2 24.5 30.7 29.6
named PT International Nickel Indonesia Tbk (PT Opr. Income (Loss) 108.4 125.5 128.8 132.7
Inco), where since 1968 INCO has worked in the Non-Operating Loss -3.8 -6.1 -6.4 -7.2
operation of an open pit nickel mine and processing Pre-tax profit 104.6 119.4 122.4 125.5
plant in Sorowako, Sulawesi. Tax -21.8 -24.0 -24.6 -25.2
Net Profit 82.8 95.4 97.8 100.3
Summary of assumptions
Balance Sheet
• INCO’s nickel production volume in 2021, (US$. Mn)
2019A 2020F 2021F 2022F
estimated at 64,000 Mt with an ASP of US$ Cash Equivalents 389 295 284 372
13,482 Mt Accounts receivable 60 125 120 57
• INCO's nickel production volume in 2022 is Inventories 145 151 145 138
estimated at 73,500 Mt with an ASP of US$ Other ST Assets 103 85 82 98
12,498 Mt. This increase in production volume is Current Assets 696 656 632 667
in line with furnace 4 conditions which may be Net Fixed Assets 1,479 1,683 1,788 1,893
operational in the 2nd half of 2022. Other LT Assets 140 91 107 106
• The government plans to ban the export of Noncurrent Assets 1,619 1,774 1,896 2,000
nickel processed products with levels of 30% to Total Assets 2,315 2,430 2,528 2,667
40% in order to encourage the downstream Payables & Accruals 139 155 155 174
nickel chain in the country. St Debt 0.1 0.6 0.6 0.7
• Other ST Liabilities 21 16 16 18
Lt Debt - - - -
• Key Risks Other LT Liabilities 133.6 142.6 142.2 160
• It is estimated that nickel prices will move flat in Total Liabilities 294 314 313 352
response to the increase in nickel ore supply Share Capital 414.2 414.2 414.2 414
towards pre-covid. Retained Earnings 1,606 1,701.9 1,799.9 1,900
• Nickel production will increase in the final Total Equity 2,020 2,116.0 2,214.1 2,315
quarter of 2021 and first quarter of next year. Total L+E 2,315 2,430 2,528 2,667
• The demand for China's stainless-steel sector, as
the main driver of global nickel demand, seems Cash Flow
2019A 2020F 2021F 2022F
to be starting to decline due to weak stainless (US$. Mn)
Net Profit 82.8 95.4 97.8 100.3
demand, but Nickel demand for the electric
DA 149.1 175.1 190.1 205.1
vehicle sector remains strong. Net Incr. W/C, etc 60.4 (50.7) (23.8) 13.7
• Fuel costs have the potential to increase in line CF. Operating 292.2 219.8 264.0 319.1
with the increase in coal commodity prices. CAPEX (150.8) (130.0) (120.0) (120.0)
Net Chg. Invest (12) (204) (105) (105)
Others 12 49 (17) 1
CF. Investing (151) (286) (242) (224)
Dividend Paid - (0) (0) (0)
(Repayment) Debt (2) (2) (2) (2)
Others - (26) (32) (5)
CF. Financing (2) (28) (33) (7)
increase/(decrease) 140 (93) (11) 88
Beginning Cash 249 389 295 284
Ending Cash 389 295 284 372
Source: INCO & Kiwoom Research

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 Equity Update |Sept 30, 2021

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