Mandiri Sekuritas ANTM: 1Q10 earnings surge via nickel

It came as no surprise, though falling short of expectations, that Antam incurred a 125%yoy net income spike, as a result of heavier reliance on nickel contribution. Higher-margin nickel as opposed to thin-margin gold trading made up 51% of revenues, while gold segment contributed 46% (versus the15%:85% mix in 1Q09). Overall, revenues fell by 37%yoy but operating income i! mproved b y five folds. With our adjustment to revised ASP for 2010 of US$21k/tn, we raised Antam’s target price to Rp2,500/share. Given the limited upside, we remain neutral on the stock.

1Q results would have been in line if not for goods in transit. Sales of ferronickel grew 43%yoy to 1,663 TNi due to higher demand. Ferronickel sales would have been higher if production in transit had arrived before the end of the quarter. During the first quarter of 2010, Antam shipped 4,177 TNi of ferronickel, and mostly were exported in February and March. Ferronickel production at Pomalaa rose 34% to 4,411 TNi due t! o the opt imal load of the FeNi III smelter following the optimization program completion in 3Q09. As the average selling price of ferronickel rose 99% to US$9.38 per lb., revenues from ferronickel rose 132% to Rp317 billion.

Controlling gold production. Revenues from gold and silver trading slipped by 74%yoy to Rp510bn as the company decidedly tempered gold trading activities. Additionally, gold production also fell slightly by 5%yoy to 681kg. In line with lower sales despite a 22% hike in gold prices to US$1,133/oz, gold revenues fell by 67% to Rp691bn.

Higher ASP, but staying put at neutral. Given the current market conditions of rising nickel prices, we uplifted our nickel price assumption to US$21k/t, coupled by FY10F net earnings upgrade of 16% to about Rp1.17tn(+93%yoy). We continue to maintain a ferronickel production target of 18TNi, in line with the company’s guidance. Our revised DCF-derived target price points to ! a TP of R p2,500/share, which provides a limited upside, thus we maintain neutral. Upside risks to our forecast would be the future contribution from gold production coming from its Cibaliung mine.