INCO - 4Q23 Earnings beats on derivative gain

KBVS Update
Thursday, 15 Feb 2024

INCO - 4Q23 Earnings beats on derivative gain

INCO's 4Q23 earnings soared by 66.3% yoy to US$53.2 mn, fueled by a gain from derivative assets related to its investment in Kolaka Nickel Indonesia (KNI), alongside solid gross profit generation and a rise in interest income.

Expect lower profitability in 2024F. Despite estimating a 4Q23 core profit of US$28.5 mn and anticipating a continued decrease in nickel prices during 1Q24, we are maintaining our projection of a lower LME price of US$17,000 per tonne for 2024. Consequently, INCO's earnings are expected to decline to US$84 mn in 2024F (-69% yoy). We slightly upgraded our net profit forecast for 2024F to US$84 mn (previously US$79mn) mostly due to higher sales level expectations to 70k tonne (previously 68k tonne). Moreover, the presence of the derivative assets is anticipated to have a substantial impact to future earnings.

Divestment progress may to completed in near-term. Mr. Kartika Wirjoatmodjo, Deputy Minister of State-Owned Enterprises, as cited by Kontan, said that an agreement has been reached on the transaction price for the divestment of INCO shares. Furthermore, it has been decided that INCO's control scheme will transition to a joint control scheme.

We reiterate BUY on INCO with target price of IDR5,750 using DCF-based TP (WACC: 12%; LTG: -3%); and long-term nickel price of US$ 20,000), which implied to 12.4x ’24F EV/EBITDA. INCO net profit could reach USD294mn in 2027 due to the commencement of Bahadopi and Pomalaa mines (our projection excluded the JV income from the smelters and Sorowako mine).

Regards,
Benyamin Mikael - KBVS Research Team