ANTM - Pinning hopes on nickel

ANTM’s 1H22 net profit grew 31.5% YoY to Rp1.53tn, accounting for 35.2% of our FY estimate  We lower our 2022 net profit estimate to Rp2.8tn with EBITDA margin at 11.6%  We maintain our “BUY” recommendation with a 37% upside potential on a 12-month view on higher nickel ASP, relatively stabilized gold sales volume and strong B/S Earnings miss estimate mostly due to legal provision ANTM's net profit rose 31.5% YoY to Rp1.53tn, yet fell QoQ by 95.9%, representing 35.2% of our FY2022 estimate. The lower net profit QoQ was attributable to reduced revenue -7.4% to Rp9.03tn in 2Q22 (+8.7% YoY to Rp18,8tn in 1H22, accounting for 47.7% of our FY2022E) coupled with higher SG&A +109.1% QoQ (+56.3% YoY in 1H22), on the back of legal provision. As a result, ANTM recorded an operating loss of Rp153.2bn in 2Q22 (+Rp1.46tn in 1H22), compared to Rp1.63tn of operating income previous quarter. Excluding such provision, ANTM would have booked a Rp1.02tn in net profit in 2Q22 (Rp2.42tn in 1H22). Balance-sheet wise, ANTM’s net gearing was at 0.06x in 1H22. Ferronickel becomes the top-line driver ANTM's revenue in 1H22 was largely supported by ferronickel that jumped 20.2% YoY (-32% QoQ in 2Q22) in the midst of higher ASP by +50.8% YoY (-2.8% QoQ) despite lower sales volume -20.3% YoY to 9,622 TNi (-30.0% QoQ), followed by gold segment that grew a tepid 3.5% YoY (+8.9% QoQ) with ASP increased 2.5% YoY (+3.8% QoQ). Gold sales volume, meanwhile, grew slightly by 1.0% YoY (+4.9% QoQ) to 433,038 T oz. Ferronickel contribution has made up 16.6% of its revenue in 1H22 compared to 15.0% in 1H21, while gold contribution decreased YoY from 68.7% to 65.4%. Meanwhile, nickel ore sales also went up 14.15% YoY in 1H22 as ASP escalated by 37.6% YoY, yet sales volume plunged 17.1% YoY (-69.6% QoQ), only reached 33% of our FY sales volume projection due to slower absorption of derivative products. Nickel demand remains strong We revise down our ANTM's net profit estimates to Rp2.8tn and Rp2.73tn in 2022 and 2023, respectively, on the back of lower nickel ore sales volume and ongoing legal case. On the other hand, we revise up ANTM's ferronickel ASP assumption to USD21,000/TNi following China's moves to ease its restrictions, spurring downstream stainless steel as well as growing EV industries. In addition, as FFR hikes of 75bps had been widely anticipated, we believe it will have a limited impact on nickel. Although The Fed’s aggressive stance in longer horizon will mean bearish for gold, we expect ANTM’s gold ASP will be relatively stabilized at USD1,875/oz this year, propped up by high concentration of sales in domestic market and gold product innovation amid strengthening purchasing power. Reiterate BUY on the back of rising downstream sector We reiterate our BUY call with a lower DCF-based price target of Rp2,700/share. The stock is currently traded at 2022e EV/EBITDA of 11.2x and 2023e EV/EBITDA of 13.1x, respectively. Despite underperformed bottom-line in 1H22, we still maintain our optimism with ANTM's outlook, on the back of 1) higher ASP of ferronickel and nickel ore in; 2) stable gold ASP and sales volume thanks to strong domestic segment; 3) government's push towards nickel downstreaming sector; 4) the company's efforts to expand gold reserves and 5) strong balance sheet. However, we note several downside risks to our recommendation, namely 1) lower-than-expected gold ASP due to strong USD following aggresive FFR hikes; 2) moderation in nickel price in line with higher supply; 3) changes in government policies and 3) forex volatility.