Indopremier INCO Downgrade TP to US$ 0,18, or Rp 2.110

FY08 Result below our Estimates

INCO managed to post sales of US$ 1,312 million for 2008 or reached 95% of our estimate. With net earning of US$ 359 million or EPS US$ 0.0036, the earning dropped by 69% YoY, below our estimate of US$ 0.04 which we estimate to decline 65% YoY. The EBITDA only reached US$ 550 million which was only 85% of our EBITDA calculation of US$ 653 million. Falling nickel price, 40.6% YoY or 10.5% below our estimate, is the dominant factor that has drowned the financial result.

Beside the plunge of nickel price, declining production has also contributed to the tumbling sales. Production FY08 reached 72,400 metric tons or represented 92% of our estimate of 79,000 metric tons. This happened as INCO stopped using fuel-based power generators in order to maintain the profitability. Meanwhile, sales volume FY08 reached 73,0048 or 95% from our estimate.

Three main Projects in 2009
Even though FY08 result is not as great as FY07, INCO still focusing onto three main projects for 2009 as follows:
1.) Hydro generating power electric
2.) Coal Conversion
3.) ESP production facility

A total of US$ 228.8 million is prepared for capital expenditure. Estimated cost for Karrebe project in 2009 accounted for US$ 116 million. So far the construction of Karrebe project has reached 50%. INCO is prepared to obtain bank loan if internal cash could not meet the capex needs

Recommendation and Valuation
Based on our new assumptions, with WACC of 19.8% (Rf 12% , beta 1.45x, risk premium 6.5%, target debt ratio 10% and terminal growth 5%) our DCF based valuation model arrive in new TP at US$ 0.18 (decline 32% from our previous TP at US$ 0.25). By assuming exchange rate at Rp 11,500/US$ we get the new TP at Rp 2,110 per share or only decrease 12% from previous TP at Rp 2,384 per share (assuming Rp 9,700/US$).