AAA Securities ANTM 2008 results

Aneka Tambang posted 74.4% decline on net profit for 2008 period to Rp1.3 tr as compared to Rp5.1 tr a year earlier , this was attributable to lower ferronickel selling price of US$21,736/ton in 2008 from US$34,672/ton in 2007. Despite the company managed to post Rp1.6 tr of net profit in 9M08, severe drop on global nickel price in the last quarter of 2008 forced ANTM’s Ferronickel selling price to accelerate the decline in the same period to US$13,178 from US$20,438/ton in
3Q08. As a result, the company full year result was below its nine months achievements.

This condition occurs as Aneka Tambang has to post higher cost due to higher fuel price and lower inventory. The company fuel cost increased to Rp999.6 bn from Rp636.4 bn on the back of higher oil price in 2008. Also, Antam has to post 98.9% higher material cost to Rp2.7 tr in 2008 (Rp1 tr of which is posted during 4Q08) from Rp1.4 tr a year earlier because of lower end inventory value since it has to be priced based on marked to market approach. As such, the combination of lower sales price and higher cost of sales slashed the company profitability in 2008, operating mar gin dropped to 16.9% from 56.6% in 2007.

Overall, the company’s bottom line in 2008 came be low our forecast of Rp2.2 tr as 4Q08 performance posted a net loss of Rp311.2 bn. Therefore, we have revisited our model for 2009F in particular on our material projection and come up with a slight adjustment on our 2009F cost of sales estimation. Our new projection expects a higher material cost of Rp850.3bn compared to our previous estimate of Rp522.7 bn. We expect nickel price to continue its downward trend this year.

Nevertheless, we view that the company current share price is trading above such mentioned potential where its shares price currently valued at 13.6x PER 2009F. Therefore we have revised out target price to Rp900 and downgraded ANTM from hold to sell.