INCO- 4Q23 Earnings beats on derivative gain

INCO- 4Q23 Earnings beats on derivative gain Vale Indonesia (INCO) reported a net profit of US$53.2 mn in 4Q23, (+66.3% yoy/+1.3% qoq). The growth was primarily fueled by a gain of US$24.7 mn from the recognition of fair value of derivative assets associated with INCO’s additional participating right, up to 30%, in its investment in KNI (Kolaka Nickel Indonesia). Additionally, solid gross profit generation of US$60.1 mn in 4Q23 (+10.3% yoy/ -9.5% qoq) despite weaker nickel price, attributed to increased production and our expectation of lower material costs, along with a remarkable 100.2% rise in interest income on a yoy basis, contributed to solid performance in 4Q23. Consequently, FY23 net profit exceeded our expectations, reaching US$274 mn (+36.9% yoy), representing 108% of our estimate. Excluding the gain on fair value of derivative assets, INCO's core profit for 4Q23 and FY23 would stand at US$28.5mn and US$249.6 mn respectively, aligning with our full year projections (98.7%). (Source : Company) Comment : Despite estimating a 4Q23 core profit of US$28.5 mn and anticipating a continued decrease in nickel prices during 1Q24, we are maintaining our projection of a lower LME price of US$17,000 per tonne for 2024. Consequently, INCO's earnings are expected to decline to US$79 mn in 2024F (-71.2% yoy). Moreover, the presence of the derivative assets is anticipated to have a substantial impact future earnings.