Analisa Saham ANTM | 4 Februari 2019

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Domestic ore sales opportunities, key pick switched to ANTM

One key threat to future nickel price is Tsingshan Indonesia’s plan to significantly increase stainless, NPI, and potentially, class 1 nickel output. Within that context however, ANTM benefits from selling nickel ore to Tsingshan and to grow volume along its expansion plan. In-line with CLSA’s recent downgrade, we lower our 19CL average nickel price forecast to US$13,000/tonne (from US$14,000/tonne) and switch our key pick to ANTM (BUY, new TP at Rp1,250), which still delivers good growth; INCO only benefits from price and offers less upside after the recent rally; downgrade to O-PF (new TP at Rp4,100).

Tsingshan increases stainless production, not all bad for Indonesia

Tsingshan Indonesia is ramping its production output on stainless steel, from 1mt in 2017 to 3mt last year and 4mt by 2020. While this looks to significantly increase future stainless supply and pressure on nickel price, domestic nickel ore demand is equally high. Tsingshan mines its own ore, but also ordered 6mt of ore from ANTM this year, vs 5mt last year; its total demand should be higher.

Lowered 19CL average nickel price, still expect an uptrend

In line with CLSA’s recent downgrade, we lower 19CL average nickel price estimates from US$14,000/t to US$13,000/t, mainly on lower YoY spot price, macro headwinds of China and trade war sentiments. That said, we believe nickel price is undervalued and sentiment has improved. We are constructive on third- consecutive year of global deficit and a multi-year low inventory level. Latest data shows global EV sales grew more than 50% YoY, although the base is still small.

ANTM forecast intact, INCO reduced

We lower our 19CL ASP assumptions for INCO and ANTM by 9-16%. However, we still expect ANTM to book good YoY profit growth (65% YoY) after our ASP revision; its operational numbers were cushioned by 25% YoY volume growth and a pickup in ore sales will be margin accretive. INCO’s Ebitda and earnings will be lower YoY due to lack of volume growth.

Switching key pick to ANTM, ore sales might beat guidance

ANTM guided domestic ore sales of 4mt, vs 2018’s 2.2mt sold. Meanwhile, Tsingshan asked for 6mt and is still expanding production capacity. Further, non- core losses might narrow. We rollover valuation basis from blended 18/19CL to 19/20CL, retain BUY on ANTM with a higher TP of Rp1,250 (was Rp1,100) and downgrade INCO to O-PF with a lower TP of Rp4,100 (was Rp4,400).


ANTM Valuation details
We value the company based on the simple average of fair values derived by applying the average 19-20CL PB and EV/Ebitda of 1.4x and 12x, respectively. The five-year historical PB average is 0.9x but we expect the stock to re-rate on the back of strong profit growth. There is no applicable data for the EV/Ebitda band due to loss at the Ebit level in 2014 and a big swing in between. ANTM has traded at a minimum 7x EV/Ebitda during its profitable years.

ANTM Investment risks
The biggest risk is nickel price volatility. This includes resurfacing of additional supplies globally from producers that previously could not generate positive cash flows. The government's decision to remove the mineral ore ban sparked a sell- off of nickel futures and the stock earlier. Relaxation of the export nickel ore ban might be beneficial to ANTM as it is one of the biggest ore exporters.