We decided to tone down our earnings forecast for 2023F, as we expect INCO to book lower earnings in 4Q23 than in 3Q23 due to the lower-than-expected nickel prices. We also fine-tuned our nickel price assumption for 2024F to USD 18,500 per ton (Previously: USD 21k per ton), as we believe global nickel prices will remain under pressure. We maintain our HOLD rating on INCO with a TP of IDR 5,000 per share.

 

Expect lower earnings in 4Q23. INCO posted a net profit of USD 53mn (-25.3% QoQ; +193.2% YoY) in 3Q23, translating into a cumulative net profit of USD 221mn (+31.3% YoY) in 9M23, in line with ours and above the consensus (73.2% and 82.0%). The QoQ decline in 3Q23 was mainly caused by the drop in ASP of -9.8% QoQ, even though sales volume grew by +4.6% QoQ. Regarding its full-year performance, we decided to tone down our 2023F earnings forecast, as we expect INCO to book lower earnings in 4Q23 than in 3Q23, considering the fact that as of Nov.10, LME nickel prices had dropped by –13.2% from its 3Q23 level; thus, we project INCO’ ASP to drop to USD 14k/ton (-11.0% QoQ) in 4Q23. As a result, we project INCO’s 4Q23 revenue to decline to USD 257mn (-7.9% QoQ) despite higher production level (+3.4%).

 

Fine-tuned our earnings forecast. We fine-tuned our nickel price assumption for 2024F to USD 18,500 per ton (prev: USD 21k per ton), as we believe global nickel prices will remain under pressure due to the abundance of supply, mainly from Indonesia. Thus, we slash our net profit forecast for 2024F by 29.0% to USD 195mn.

 

Updates on projects. The mining permit for the Bahodopi mine is expected to be completed by November 2023 (in August 2023, INCO signed a joint venture agreement to develop an RKEF smelter there). Once the environmental impact assessment (AMDAL) is done, the construction will be started. Meanwhile, the company expects to receive approval for the AMDAL of its Pomalaa mining project in Feb 2024, while its HPAL financing process has kicked off (key permit for the HPAL is expected to be completed in Dec 2023, with a capacity of up to 120.000 ton/year). Lastly, INCO had signed a definitive agreement with Huayou for the Sorowako project in August 2023. INCO is conducting a feasibility study, which is expected to be completed in Dec 2023.

 

Updates on the divestment overhang. Ministry of Energy and Mineral Resources (MOEMR) announced that it has an agreement regarding the divestment of 14% of INCO’s shares to MIND ID, bringing MIND ID’s stake in INCO to 34%. We see this as a positive catalyst; although INCO has to give up more shares than initially planned (14% vs 11%), INCO might retain full operational control of the Sorowako mine, ensuring the execution of its expansion plan.

 

HOLD, TP of IDR 5,000. We maintain our HOLD on INCO with a new TP of IDR 5,000 per share (Prev: IDR 5,900 per share), implying an FY24F EV/EBITDA of 5.7x. Our TP Is DCF-based, with the following assumptions: CoE of 13.8% and terminal growth of 3%. Downside to our call: Delays in projects, lower-than-expected commodity prices.