Mandiri Sekuritas ANTM Muted expectations

FY08 net income dropped by 74.4%yoy. Antam posted revenue of Rp9.5tn,
down by 20.6%yoy as a result of (a) lower ferronickel and nickel ore sale volume
(-2.9%yoy and -22.6%yoy) and (b) lower average selling prices of both
commodities (-37.3%yoy and -26.7%yoy). The bright spot came from gold, for
which the company booked sales of Rp2.7tn, up by 165.0%yoy, as it accounted
for 29% of total revenue. Additionally, cost of sales grew 51.8%yoy to Rp7.0tn,
due to the 57.0% surge in fuel costs. Overall, the summary effect was a 74.4%yoy
drop in 2008 net earnings to Rp1.3tn, below ours and consensus estimates.

Gold is not the answer…for now. The gold jump in 2008 is somewhat a
misnomer. Although gold revenue jumped by 165.0%yoy, due to higher sales
volume of 9,820 (+96%yoy) and selling price of US$873/t.oz, this principally came
from gold trading via Logam Mulia where margins are thin; gold ore production
on the other hand, remained flat. Likewise for 2009, gold production is set to be
only 2,821kg, about the same production level in 2008. Thus, should nickel
prospects remain depressed, Antam’s gold contribution should be again more
relevant than it is traditionally supposed to be.

Sell and maintain PE based TP of Rp905/share. At this juncture, in the
absence of vital pricing support, we maintain a sell on the stock with TP of
Rp905/share, while slashing down our FY09-10F earnings by 74.7% and 65.5%
from previous estimates to Rp344bn and Rp638bn. Upside risks are (a) rebound
in nickel prices and (b) improved global demand of stainless steel which should
help push up prices of intermediary products such as nickel.