55.4% potential upside
Using DCF with a WACC of 13.3%, we arrive at a target price of Rp2,875. The shares currently trade at 09F/10F PE of 28.1x/8.4x, offering 55.4% potential upside. BUY.
A shift to gold
ANTM’s gold business is taking off. Accounting for a mere 25.2% of the company’s total revenues in 1Q08, the proportion of gold sales rose to an astonishing 79.9% in 1Q09 as nickel production continued its deep decline. For 2009F, we expect ANTM’s revenues from its gold business to reach Rp5,926bn, or 66% of its total revenues.
Margins to rebound in 2010
Margins will be lower in 2009, dragged down by gold trading activities which have a low profit margin. In 2010, however, overall margins should improve dramatically on the back of an 87% expected surge in nickel revenues. This should boost the 2010F net margin to 19.1% from 6.4% in 2009F.
Brighter outlook for nickel prices
We are increasingly upbeat on a recovery in nickel prices. Prices have already come down significantly and there is now the potential for recovery given steady declines in nickel inventory on the London Metal Exchange (LME) since early May 2009. Given this newfound optimism we raise our 09F ASP estimate for nickel to US$14,000/ton (from $12,000/ton previously) and our 10F ASP estimate to US$24,350/ton (from US$15,000/ton previously).
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