26 February 2024

Price Rp 3.950

Target Price Rp5.600 with 43% potential upside BUY

Investment Consideration

Production grew in 4Q23

• In 4Q2023, INCO recorded nickel in matte production growth of +18% YoY to 19,084 MT or +6.3% QoQ, the highest growth since 4Q2021. For 2023FY, the production reached 70,728 MT, an increase of +18% YoY.
• INCO’s revenue decreased by -3.7% YoY but was higher by +5.5% QoQ to USD 294 million in 4Q2023. Despite an average realized price decrease of -10% YoY during 2023FY, INCO’s revenue still increased by +4.5% YoY to USD 1.3 billion, in line with an increase in the volume of deliveries of nickel in matte.
• In terms of sales volume, INCO booked +26% YoY or +21% QoQ growth to 20,888 MT in 4Q2023, and an increase of +17% YoY to 71,323 MT in 2023FY.
• We are targeting a total nickel in matte production in 2024F of 70,800 MT, aligning with INCO’s annual production target for this year.

Maintaining lower costs

• INCO remained focused on improving productivity and cost efficiency in 4Q2023.
• The cost of revenues in 4Q23 was lower by -6.7% YoY, helped by lower fuel consumption and royalty expenses. The cash cost per ton was USD 9,949, -21.2% YoY compared to USD 12,640 per ton in 4Q22. INCO also managed to maintain production costs at USD 10,089 per ton in 2023. Lower cash costs were also impacted by lower coal prices and an increase in HSFO consumption (high sulphur fuel oil) of +17% QoQ.
• The cost per ton is forecast to decline by -18% YoY in 2024F to USD 8,244 per ton as lower energy costs and production efficiency continue.
• Lower cost of revenue resulted in a higher GPM at 20.4% in 4Q2023 and reached 28.2% in 2023FY.
• INCO also booked gains on recognition of fair value of derivative assets coming from its investment in PT Kolaka Nickel Indonesia (KNI) at USD 24.7 million, resulting in a higher net profit of +66.3% YoY or +1.3% QoQ to USD 53 million.
• In terms of share divestment, The Ministry of Energy and Mineral Resources (ESDM) said that the divestment plan for INCO shares owned by Vale Canada Limited and Sumitomo Metal Mining Co. to MIND ID is in the divestment price negotiation process. INCO management confirmed there is no agreement yet.

Valuation: 43% upside

For 2024F, we adjust our target price within a year to IDR 5,600. The target price is based on a 2024F EV/EBITDA target at 7.6x. With 43% potential upside, our recommendation is BUY