ANTM - Spurred by EV development

 ANTM’s 1Q22 net profit skyrocketed 132.5% YoY to Rp1.5tn (+868.4% QoQ) 

 We expect revenue and net profit of Rp39.4tn and Rp4.3tn in 2022, respectively 

 We reiterate our “BUY” call with 39.7% upside potential on a 12-month view on high ASP of ferronickel and nickel ore 

Topping expectation ANTM's net profit jumped 132.5% YoY in 1Q22 to Rp1.5tn (+868.4% QoQ), accounting for 33.8% of our FY estimate. The higher profit YoY was attributed to growing revenue +5.8% (-18.6% QoQ) in 1Q22 to Rp9.75tn coupled with reduced COGS by 3.8% YoY (-32.1% QoQ). As a result, ANTM's gross margin escalated from 17,7% in 1Q21 to 25.1% in 1Q22. Furthermore, the company's operating expenses decreased 0,2% YoY thanks to lower G&A from rent expenses, prompting operating margin to expand from 8.6% in 1Q21 to 16.6% in 1Q22. Meanwhile, the company's finance cost shrunk significantly by 106.6% YoY in 1Q22 to Rp39.8bn, on the back of gain on fx from short term bank and investment loans compared to loss of Rp148.3bn booked in 1Q21. In addition, the company's balance sheet remained strong in 1Q22 with net cash position. Boosted by Ferronickel and nickel ore ANTM's revenue growth YoY was driven mainly by ferronickel and nickel ore sales that increased 51.0% YoY and 70.9% YoY in 1Q22, respectively thanks to higher ASP by 50.1% YoY and 17.2% YoY. Gold sales, however, declined 10.7% YoY in 1Q22 to Rp5.89tn dragged by lower sales volume despite a 0.6% increase YoY in ASP to USD1,876/troy ounce. As a result, gold contribution to revenue declined from 71.5% in 1Q21 to 60.3% in 1Q22. Meanwhile, ferronickel contribution went up from 13.4% in 1Q21 to 19.1% in 1Q22 and nickel ore contribution expanded from 10.3% to 16.7%. In addition, alumina's sales were also up 24.7% YoY to Rp275.97bn in 1Q22 as ASP improved by 22.9% YoY to USD532/T. Gaining momentum from positive nickel outlook We expect ANTM's revenue growth of 2.5% YoY in 2022, bolstered by higher sales of ferronickel and nickel ore. We estimate ferronickel ASP to stand at USD19,000/TNi, assuming its price growth to moderate in 2H22 on the back of aggresive monetary tightening and expected mild suprlus as well as slowdown in China. Nevertheless, we expect ferronickel and nickel sales volume to escalate by 2% and 22.23% YoY respectively. Meanwhile, we anticipate gold ASP to be at USD1,875/ounce, amid high uncertainty from geopolitical tension, yet strong USD from FFR hikes will limit its upside. However, gold sales volume is expected to lower in 2022. In addition, we expect ANTM's operating margin to expand to 12.6% this year as expenses to remain controllable. In partnership with CNGR Co., Ltd, the company plans to establish nickel matte processing facilities with estimated capacity of 80,000 tons. Reiterate BUY on the back of strong nickel demand We maintain our BUY call with a DCF-based price target of Rp2,850/share. The stock is currently traded at a 2022F PER of 15.1x. We are sanguine about ANTM's performance, propped up by 1) higher ferronickel and nickel ASP on the back of continued development of EV infrastructures; 2) government's push towards nickel downstreaming sector; 3) relatively stable gold ASP; 4) the company's efforts to increase gold reserves and 5) solid balance sheet. Nevertheless, we note several downside risks to our recommendation namely 1) lower-than-expected gold ASP due to aggresive interest rate hikes and China's slow recovery; 2) moderation in nickel and ferronickel prices growth; and 3) planned export tax policy.