• Above; raised to Outperform from Neutral. 2010 net and operating profits of Rp1.66tr (+176% yoy) and Rp1.99tr (+238% yoy) were 7-8% ahead of our forecasts and consensus. The strong achievement was led by higher-than-expected ASPs, supported by in-line production and costs. This has generated greater confidence in its 2011-12 outlook amid improving nickel and gold prices. We upgrade our FY11-12 earnings estimates by 8-9% (and introduce 2013 estimates). Following this, we raise our DCF-based price target to Rp2,975 from Rp2,800 (WACC 11.4%). We
also upgrade the stock to Outperform, anticipating stock catalysts from nickel and gold price upside.
also upgrade the stock to Outperform, anticipating stock catalysts from nickel and gold price upside.
• Strong earnings delivery. 4Q10/FY10 earnings were supported by higher-thanexpected ASPs for ferronickel, nickel ore and gold, especially in 4Q10. FY10 production largely met our expectations: ferronickel 18,688 tonnes (+49% yoy), accounting for 98% of our projection; gold 2,780 kg (flat yoy), 99% of our forecast; nickel ore 7.0wmt (+20% yoy), 112% of our projection. 2010 earnings also yielded few cost surprises, indicating better cost management.
• Brighter outlook. The sound operating performance bodes well for 2011. For ferronickel, signs of short-term support for nickel prices translate to upside for our 2011-12 price assumption of US$24,000/tonne. We maintain our forecast of FeNi production volume of 18,000 tonnes (-5% yoy) in 2011, factoring in possible maintenance of its production facilities, before a volume increase to 20,000 tonnes (+11% yoy) in 2012. For gold, a second quarter of contributions from its Cibaliung project in 4Q10 suggests firming operations at the new project. We forecast combined gold production of 3,000kg for 2011-12.
Analysis by : CIMB