(INCO IJ / INCO.JK, UNDERPERFORM - Maintained, Rp3,750 - Tgt. Rp2,180, Basic Resources)
We maintain Underperform on Inco after no positive surprises from its 1Q09 results, although we slightly increase our DCF-based target price to Rp2,180 (WACC 15%) from Rp2,150 from lower capex assumptions. Inco returned to a profit in 1Q09, as expected, though the profit was 7-8% short of our forecast and consensus estimate. As we are expecting rising nickel prices and margin improvements in the coming quarters, we maintain our FY09 earnings forecast. However, at 26-17x CY09-10 P/Es, we fear the share price has run ahead of fundamentals. Valuations seem to have priced in massive earnings upgrades and a nickel price recovery to more than US$18,000/tonne (currently US$13,295). We believe downside risk exceeds upside potential.
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