1Q24 Result; Earnings Below Our and Street Estimates

1Q24 earnings plummeted by 96.4% YoY and 88.5% to USD6mn: we deem these results far below our and street expectation, since it only forms 3.7%/4.3% of our forecast and consensus. Losses on derivatives were the worst drag, as INCO recorded a USD13mn loss in 1Q24 vs. a USD96mn gain in 1Q23. If we exclude the derivative loss, earnings declined as well, down by 73.8 YoY and 64.3% QoQ, to USD19mn. 1Q24 revenue sank by 36.7% YoY and 21.9% QoQ, to USD230mn, thus delivering just 21.9% of our forecast and 23.5% of Consensus. ASP was the main drag, as it declined by 41.6% YoY and 11.2% QoQ, to USD12,651/t, whereas sales volume shifted by +8.5% YoY and -12.1% QoQ to 18,175t.

1H24F Earnings Preview; Potentially Below Ours and Consensus

Our 2Q24F proforma suggests that INCO may potentially book USD250mn (+8.8% QoQ/-15.4% YoY) in revenue and USD27mn (+44% QoQ/-71.5% YoY) in net profit during the quarter, thus bringing 1H24 revenue up to USD480mn (-27.1% YoY) and net profit to USD46mn (-72.5% YoY). Kindly note that we do not factor in changes in fair value of INCO derivative assets (related to Pomala project call options) as it will fluctuate, depending on nickel price assumptions. We project the result as shown below; going forward, we expect LME nickel price to hover around USD18,000/t, and INCO ASP realization around 75.2% (vs. 2023 at 79.7%). Our calculations suggest INCO will achieve 45.7%/28% of our revenue and earnings forecast and 49.1%/32.1% of consensus revenue and earnings estimates.

Valuation: Maintain BUY with lower TP of IDR5,400/sh

We reiterate a BUY on INCO, with Lower 2025F TP of IDR5,400/sh (Previously IDR5,700/sh), pegging our valuation at 7X EV/EBITDA. Key reason to downgrade was lower ASP realization to LME Nickel Benchmark, despite a depressed LME nickel price during 1Q24. We thus revise our ASP forecast by 5.6%/5.6%, to USD13,529/t and USD14,261/t for 2024F/2025F, respectively, letting the production and sales volume remain unchanged. This translates to 5.6%/5.6% lower revenue and 27%/23.5% lower earnings for our 2024F/2025F.

INCO - A Stable Nickel Price is Really Not Enough

INCO - A Stable Nickel Price is Really Not Enough

03 July 2024 - 07.00am

INCO - A Stable Nickel Price is Really Not Enough

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