CIMB Inco Indonesia Company update - Pricey

(INCO IJ / INCO.JK, UNDERPERFORM - Maintained, Rp3,025 - Tgt. Rp2,150, Basic Resources)

We maintain Underperform on Inco. While Inco arguably has the best leverage to nickel prices, its share price appears to have priced in a too optimistic scenario amid still-volatile nickel prices. A required earnings upgrade at this juncture appears elusive. Inco is trading at 20x CY09 P/E, too much of a premium to its historical hypothetical P/E of 15-16x forward P/E. Even after replacing our 2-stage DCF analysis with a single long-term WACC assumption and adjusting our forex assumptions positively, our target price only rises to Rp2,150 (from Rp1,850), suggesting downside risks.