INCO Company Updates: Well-performed First Half
Key Takeaways:
• INCO secured a revenue of USD295.8mn in 2Q23 (-19% QoQ from USD363.2mn), broadly in line with FY23E/cons. estimates at 50%/52.3%. Meanwhile, the EBITDA posted a more noticeable decline of -29% QoQ to USD123.0mn.
• INCO’s 1H23 revenue recorded a blow-up of +27.6% YoY. We maintain FY23E’s production realization of c. 69.3kt in nickel matte with a c. 100% sales realization. We also expect margins to improve amid declining coal prices.
• INCO has laid out USD60.8mn of capex during 2Q23 or grew +36% YoY, with spending expected to increase in 3Q23 – 4Q23, supported by the company’s solid cash position (USD822mn as of 2Q23).
• The Sambalagi RKEF early works in Bahodopi is due by 9M23, the FEL3 of Pomalaa HPAL is to be resolved in 3Q23, and the definitive agreement on the Sorowako mining and HPAL is due by 3Q23.
• We recommend BUY for INCO with a target price (TP) of IDR7,650 (12.6% upside), implying a PE of 23.3x/21.3x and a PBV of 2.0x/1.8x for FY23E/FY24F. Several key risks to our call include: 1) project delays, 2) LME prices corrections, 3) revival of coal prices, 4) impeded shares divestment.
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