56,5% Upside, Buy

2nd July 2026

Price Rp 4330

Target Price Rp 6780

Investment Consideration

New Revenue Streams Support Long-Term Growth

• PT Vale Indonesia Tbk (INCO) delivered a mixed set of results in 1Q26, with lower production and sales volumes due to scheduled operational adjustments. However, stronger nickel prices and improving profitability helped offset the impact of weaker volumes. Revenue reached USD253 million, declining 11.3% QoQ but increasing 22.3% YoY, primarily supported by higher realized nickel prices.
• Nickel matte production declined 20% QoQ to 13,620 tons of nickel (tNi), mainly reflecting the scheduled rebuild of Furnace 3. Consequently, nickel matte sales also fell 25% QoQ to 13,727 tNi.
• A key development in 2026 was the commencement of operations across three mining blocks: Sorowako, Bahodopi, and Pomalaa. These operations produce both saprolite and limonite nickel ore, creating a new revenue stream alongside the company’s traditional nickel matte business. During the quarter, the Bahodopi block sold 886,094 wet metric tons (wmt) of saprolite and limonite ore, while the Pomalaa block contributed 88,983 wmt.
• The average realized selling price of nickel matte increased 15% QoQ to USD14,213 per ton, helping offset lower production volumes and supporting earnings recovery.
• Looking ahead, we expect stronger revenue performance during 2026 as LME nickel prices rebounded to USD19,635 per ton in May 2026, which should translate into higher realized prices beginning in 2Q26.
• Despite lower first-quarter production, management reaffirmed its confidence in achieving the FY2026 nickel matte production target of 67,645 tons.

Q1 2026 Results: Higher Nickel Prices Drive Margin Expansion

• Despite softer operating volumes, profitability improved significantly, supported by stronger nickel prices and disciplined cost management.
• EBITDA increased 29% QoQ to USD80 million, while net profit surged 85% QoQ to USD44 million. Net profit margin improved to 17.3% in 1Q26, reflecting stronger operating leverage.
• Cost of revenue increased 4.8% YoY but declined 20.8% QoQ, mainly due to lower production activity. Fuel consumption fell 23% YoY, partially offsetting a substantial 263% YoY increase in royalty expenses following the implementation of the revised royalty framework.
• Cash cost per ton of nickel matte increased 8% QoQ to USD10,382, mainly reflecting lower production utilization during the Furnace 3 maintenance period and higher energy-related input costs.
• Looking ahead, management expects cash costs to improve as production normalizes following the completion of Furnace 3 maintenance, although operating costs will remain sensitive to fluctuations in oil prices and broader commodity markets.
• We expect margins to improve further throughout 2026, supported by production normalization, continued cost discipline, and higher average nickel prices.

Regulation Update

• Management continues to evaluate the potential impact of Indonesia’s revised mineral royalty framework and the proposed nickel export duty and windfall tax, both of which remain subject to final government approval.
• Under Government Regulation (PP) No. 19/2025, nickel ore royalties are applied on a progressive basis, ranging from 14% to 19% depending on the prevailing Harga Mineral Acuan (HMA), with the highest rate applicable when HMA reaches or exceeds USD31,000 per ton.
• For processed nickel products, royalties range from 5%–7% for Nickel Pig Iron (NPI) and 4%–6% for ferronickel.
• Meanwhile, low-grade nickel ore containing up to 1.5% nickel and supplied to Indonesia’s domestic EV battery industry remains eligible for a preferential 2% royalty rate, subject to regulatory requirements. Ore sales that do not qualify under the EV battery scheme are generally subject to the standard progressive royalty framework.
• Although regulatory uncertainty remains an overhang, the proposed additional royalty adjustments, nickel export duty, and windfall tax have been temporarily postponed while the government seeks a more balanced approach between maximizing state revenue and maintaining industry competitiveness.

Valuation: Maintain Buy, TP IDR 6,780 (56.5% upside)

• We maintain our BUY recommendation on INCO with a revised 12-month target price of IDR6,780, implying 56.5% upside from the current share price.
• Our valuation is based on a target 2027F EV/EBITDA multiple of 9.1x, supported by improving nickel prices, the normalization of production following Furnace 3 maintenance, and additional long-term growth from the company’s new mining operations in Bahodopi and Pomalaa.