Vale Indonesia

3 July 2024 | Equity Research | Nickel Sector

Company Update A Stable Nickel Price is Really Not Enough

BUY 1Q24 Result; Earnings Below Our and Street Estimates
Target Price : 5,400
Current Price : 4,100 1Q24 earnings plummeted by 96.4% YoY and 88.5% to USD6mn: we deem these results far
Upside : 31.7% below our and street expectation, since it only forms 3.7%/4.3% of our forecast and
consensus. Losses on derivatives were the worst drag, as INCO recorded a USD13mn loss in
1 2M P RICE P ERFORMANCE 1Q24 vs. a USD96mn gain in 1Q23. If we exclude the derivative loss, earnings declined as well,
(IDR) (%) down by 73.8 YoY and 64.3% QoQ, to USD19mn. 1Q24 revenue sank by 36.7% YoY and 21.9%
7,000 20.0 QoQ, to USD230mn, thus delivering just 21.9% of our forecast and 23.5% of Consensus. ASP
6,500 10.0 was the main drag, as it declined by 41.6% YoY and 11.2% QoQ, to USD12,651/t, whereas sales
6,000 - volume shifted by +8.5% YoY and -12.1% QoQ to 18,175t.
(10.0)
5,500
(20.0) KTA from 1Q24 Analysts Meeting
5,000
(30.0)
4,500 (40.0) Key takeaways from the Analysts Meeting: positive news for INCO, as high 1Q24 energy
4,000 (50.0) consumption is only temporary, as the Company focused on stockpiling and dealing with an
3,500 (60.0) unfavorable ore grade supply which demanded more energy to process. Going forward, INCO
Jul-23 Oct-23 Jan-24 Apr-24
already expends more effort towards transporting higher grade ore from Bahodopi to
IN CO IJ (LHS) Rel. to JCI performance (RHS)
Sorowako, as stockpile level normalizes to a 3-week-plus supply. Sorowako project update:
Source: Bloomberg a feasibility study completed, as INCO and Huayou will now move on to the next step, towards
land acquisition and permit acquisition. Bahodopi projects update: Management continues
S TOCK P ERFORMANCE studies, for a better picture on limonite ore potential. Completion is anticipated by end of
YTD 1M 3M 12M this year. Further, on POMALA project; INCO and its partners (FORD, Huayou) have already
Absolute -3.5% -16.3% 0.7% -33.7% hammered out an agreement to sit down and discuss how to fulfill all requirements to comply
JCI Return -2.0% 2.2% -1.5% 6.4% with U.S. IRA, and INCO has the right to exercise its call option, once the projects have
Relative -1.5% -18.5% 2.2% -40.1% achieved 100% nameplate capacity.
Source: Bloomberg
1H24F Earnings Preview; Potentially Below Ours and Consensus
MARKET DATA Our 2Q24F proforma suggests that INCO may potentially book USD250mn (+8.8% QoQ/-15.4%
12M price range (IDR) 3,559 - 6,901 YoY) in revenue and USD27mn (+44% QoQ/-71.5% YoY) in net profit during the quarter, thus
12M PE range (x) 6.7 - 17.6 bringing 1H24 revenue up to USD480mn (-27.1% YoY) and net profit to USD46mn (-72.5%
Outstanding shares (mn) 10,497 YoY). Kindly note that we do not factor in changes in fair value of INCO derivative assets
Market cap (IDRbn)/(USDmn) 43,039 / 3,013 (related to Pomala project call options) as it will fluctuate, depending on nickel price
Avg daily turn. (IDRbn/USDmn) 77.5 / 5.4 assumptions. We project the result as shown below; going forward, we expect LME nickel
Source: Bloomberg price to hover around USD18,000/t, and INCO ASP realization around 75.2% (vs. 2023 at
79.7%). Our calculations suggest INCO will achieve 45.7%/28% of our revenue and earnings
S HAREHOLDERS forecast and 49.1%/32.1% of consensus revenue and earnings estimates.
Vale Canada Ltd. 43.8%
Sumitomo Metal Mining 20.0% Valuation: Maintain BUY with lower TP of IDR5,400/sh
Mineral Industri Indonesia 15.0%
We reiterate a BUY on INCO, with Lower 2025F TP of IDR5,400/sh (Previously IDR5,700/sh),
Others 21.2%
pegging our valuation at 7X EV/EBITDA. Key reason to downgrade was lower ASP realization
Source: Bloomberg, BCA Sekuritas
to LME Nickel Benchmark, despite a depressed LME nickel price during 1Q24. We thus revise
our ASP forecast by 5.6%/5.6%, to USD13,529/t and USD14,261/t for 2024F/2025F,
Muhammad Fariz respectively, letting the production and sales volume remain unchanged. This translates to
muhammad.fariz@bcasekuritas.co.id 5.6%/5.6% lower revenue and 27%/23.5% lower earnings for our 2024F/2025F.
+6221 23587222 ext 11103

muhammad.fariz@bcasekuritas.co.id
 BBTN

INCO | A Stable Nickel Price is Really Not Enough

Financial Summary
Income Statement
2022 2023 2024F 2025F 2026F
Year-end 31 Dec (USD mn)
Revenue 1,179 1,232 992 1,047 1,102
Cost of revenue 866 885 841 842 836
Gross profit 314 347 151 205 266
EBITDA 458 499 309 383 457
EBIT 294 325 129 182 243
Interest income 11 36 34 39 44
Interest expenses (7) (10) (5) (5) (5)
Other incomes/ (expenses) (22) 2 - - -
Pre-tax profit 276 353 157 216 282
Tax Expenses (75) (78) (37) (49) (63)
Minority Interests - - - - -
Net Income 200 274 121 167 220
Balance Sheets
2022 2023 2024F 2025F 2026F
Year-end 31 Dec (USD mn)
Cash and cash equivalents 634 699 639 673 755
Trade receivables 141 102 98 103 109
Inventories 156 156 148 148 147
LT Investments & LT Receivables 59 89 62 65 68
Fixed assets 1,550 1,696 2,011 2,135 2,263
Other assets 118 185 149 157 165
Total assets 2,658 2,926 3,106 3,282 3,509
Short term liabilities 118 144 123 124 123
Other short term liabilities 55 68 59 61 62
Loans 6 9 10 10 10
Other long term liabilities 124 142 114 120 127
Total liabilities 303 361 306 315 322
Minority Interests 0 - - - -
Equity 2,355 2,565 2,800 2,967 3,187
Total liabilities & Equities 2,658 2,926 3,106 3,282 3,509
Cash Flow Statement
2022 2023 2024F 2025F 2026F
Year-end 31 Dec (USD mn)
Net income 200 274 121 167 220
Depreciations and Amortization 164 174 180 200 214
Change in working capital (45) 10 6 (9) (9)
Cash flows from operating activities 320 458 307 359 424
Capex (195) (319) (496) (325) (342)
Others - (12) 12 - -
Cash flows from investing activities (195) (332) (484) (325) (342)
Dividend Paid - (60) - - -
Net change in debt 1 3 1 - -
Others (0) (4) 115 - -
Cash flows from financing activities 1 (62) 116 - -
Net increase/(decrease) in cash and cash
126 65 (60) 34 83
equivalents
Cash and cash equi. at the begin. of the year 508 634 699 639 673
Cash and cash equi. at the end of the year 634 699 639 673 755
Key metrics and ratios 2022 2023 2024F 2025F 2026F
EBITDA margin (%) 38.8 40.5 31.1 36.6 41.5
Net margin (%) 17.0 22.3 12.2 16.0 19.9
ROE (%) 8.5 10.7 4.3 5.6 6.9
Current ratio (x) 5.7 4.9 5.2 5.4 5.8
Acid ratio (x) 4.8 4.2 4.4 4.6 5.0
Interest coverage (x) 42.6 32.2 25.1 35.6 47.4
Gearing (%) 0.2 0.3 0.4 0.3 0.3
Net gearing (%) nc. nc. nc. nc. nc.

muhammad.fariz@bcasekuritas.co.id 2
 BBTN

INCO | A Stable Nickel Price is Really Not Enough

Exhibit 1. 2Q24 Preview

Sources: BCA Sekuritas, Company

Exhibit 2. 1Q24 Result

Sources: BCA Sekuritas, Company

muhammad.fariz@bcasekuritas.co.id 3
 BBTN

INCO | A Stable Nickel Price is Really Not Enough

Exhibit 3. INCO Revision

Sources: BCA Sekuritas, Company

muhammad.fariz@bcasekuritas.co.id 4
 BBTN

INCO | A Stable Nickel Price is Really Not Enough

Equity Research Institutional Equity Market Sales Equity Market

research@bcasekuritas.co.id ecm@bcasekuritas.co.id sales@bcasekuritas.co.id

PT BCA Sekuritas
Menara BCA – Grand Indonesia, 41st Floor
Jl. MH Thamrin No. 1, Jakarta 10310
Tel. +62 21 2358 7222
Fax. +62 21 2358 7250/300

DISCLAIMER
By receiving this research report ("Report"), you confirm that: (i) you have previously requested PT BCA Sekuritas to deliver this Report to you and you are legally entitled to receive the Report in accordance with
Indonesian prevailing laws and regulations, and (ii) you have fully read, understood and agreed to be bound by and comply with the terms of this Report as set out below. Your failure to comply with the terms below
may constitute a violation of law.
This Report is strictly confidential and is for private circulation only to clients of PT BCA Sekuritas. This Report is being supplied to you strictly on the basis that it will remain confidential and that you will maintain
its confidentiality at all times. Without the prior written consent of PT BCA Sekuritas authorized representative(s), no part of this Report may be (i) copied or reproduced in any form by any means, (ii) redistributed or
29 September 2023 | Pulp & Paper
delivered, directly or indirectly, to any person other than you, or (iii) used for any other purpose that is not in line with the terms of the Report..
PT BCA Sekuritas, its affiliates and related companies, their directors, associates, connected parties and/or employees (excluding the individual analysts who prepare this Report) may own or have positions in
securities of the company(ies) covered in this Report and may from time to time buy or dispose, or may have material interest in, those securities.
Further, PT BCA Sekuritas, its affiliates and its related companies do and seek to do business with the company(ies) covered in this Report and may from time to time: (i) act as market maker or have assumed an
underwriting commitment in the securities of such company(ies), (ii) sell to or buy those securities from other investors for its own account, (iii) perform or seek to perform significant investment banking, advisory
or underwriting services for or relating to such company(ies), or (iv) solicit any investment, advisory or other services from any entity covered in this Report. Furthermore, the personnel involved in the preparation
of this Report may also participate in the solicitation of the businesses as described above.
The views expressed in this Report reflect the personal views of the individual analyst(s) at PT BCA Sekuritas about the securities or companies mentioned in the Report and the compensation of the individual
analyst(s), is, or will be directly or indirectly related to the performance of PT BCA Sekuritas’ activities. PT BCA Sekuritas prohibits the individual analyst(s) who prepared this Report from receiving any compensation,
incentive or bonus based on specific investment banking transactions or for providing a specific recommendation for, or view of, a particular company (including those covered in the Repot). However, the individual
analyst(s) may receive compensation based on the scope of his/their coverage of company(ies) in the performance of his/their duties or the performance of his/their recommendations.
In reviewing this Report, you should be aware that any or all of the above activities of PT BCA Sekuritas, its affiliates and related companies, their directors, associates, connected parties and/or employees, among
other things, may give rise to real or potential conflicts of interest between them and you.
The content of this Report is prepared based on data believed to be correct and reliable on the date of this Report. However, this Report: (i) is not intended to contain all necessary information that a prospective
investor may need, (ii) is not and should not be considered as an investment advice in any way, and (iii) cannot be relied as a basis for making an informed investment decision. Accordingly, PT BCA Sekuritas does
not guarantee the adequacy, accuracy, completeness, reliability or fairness of any content of this Report and PT BCA Sekuritas, its affiliates and related companies, their directors, associates, connected parties
and/or employees (including the analysts) will not be liable in any way for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) arising from or
relating to any reliance on or use of the content of this Report by any person (including you).
This Report is general in nature and has been prepared for information purposes only. It is intended for circulation amongst PT BCA Sekuritas’ clients only and does not consider any specific investment objectives,
financial situation and the particular needs of any specific person who may receive this Report. The entire content of this Report is not and cannot not be construed or considered as an offer, recommendation,
invitation or solicitation to enter into any transaction (including trading and hedging) relating to the securities, other financial instruments, and other form of investments issued or offered by the company(ies)
covered in this Report.
It is your own responsibility to: (i) independently evaluate the content of this Report, (ii) consider your own individual investment objectives, financial situation and particular needs, and (iii) consult your own
professional and financial advisers as to the legal, business, financial, tax and other aspects before participating in any transaction in respect of the securities of company(ies) covered in this Report.
Please note that the securities of the company(ies) covered in this Report might not be eligible for sale in all jurisdictions or to all categories of investors. The availability of those securities and your eligibility to
invest in those securities will be subject to, among others, the prevailing laws of the relevant jurisdiction covering those securities. Furthermore, the value and income of any of the securities covered in this Report
can fall as well as rise and an investor (including you) may get back less than invested. Future returns are not guaranteed, and a loss of original capital may be incurred. Foreign-currency denominated securities
are subject to fluctuation in exchange rates that could have a positive or adverse effect on the value, price or income of such securities and financial instruments. Past performance is not indicative of comparable
future results and no guarantee regarding future performance is provided in this Report.
This Report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution,
publication, availability or use would be contrary to the applicable laws or regulation of such jurisdiction.

muhammad.fariz@bcasekuritas.co.id 5