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INCO - The emergence of the nickel giant

Benyamin Mikael 31 October 2023

KBVS Update
Tuesday,  31 Oct 2023

INCO - The emergence of the nickel giant
(Reinitiate BUY; TP: IDR6,500)

•In-line 3Q23 results. INCO booked USD52.6mn of net profit in 3Q23, declined by 25.4% qoq. This resulted INCO achieved a higher profit of USD221.1 mn in 9M23, or grew by 31.3% yoy, which is in-line with with our expectation. 4Q23 may pose challenges due to declining nickel prices and rising oil prices.

•Expect lower profitability in 2024F. we project INCO to book USD 208mn of net profit in 2024F or decline by 17.7% yoy mostly as we expect lower nickel price of USD21,000/tonne (-12.5% yoy) while COGS/tonne down to USD11.8k (-13.5% yoy) due to lower energy cost expectation. Nickel supply is expected to remain surplus in 2024F, estimated at 180kt (slightly lower than 2023 surplus of 200kt).

• Future projects are progressing well. Anticipating the revised AMDAL approval for the Bahadopi RKEF project in Nov ’23 and the subsequent AMDAL addendum approval for the Pomalaa mining project in Feb ’24, we project INCO will allocate a USD700 mn capex in 2024 (+106% yoy).

• Reinitiate BUY with TP IDR6,500. We reinitiate BUY on INCO with a DCF-based target price of IDR6,500 (WACC: 11.6%; LTG:-3%; and long-term nickel price of USD 22,000), which implied to 20.3x ‘24F PE and 6.8x ’24F EV/EBITDA. INCO net profit could reach USD360mn in 2027 due to the commencement of Bahadopi and Pomalaa mines (our projection excluded the JV income from the smelters and Sorowako mine).


Regards,
Benyamin Mikael - KBVS Research

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