• During 1Q10 Inco managed to post a robust growth in its financial performance where the company’s net income surged by 344.0% YoY to US$76.3mn from US$17.2mn in 1Q09. The result came at 21.3% to our 2010F full year net income expectation of US$358.2mn and 28.8% of the consensus’ net income estimates.
• Such increase was mainly backed by the company’s ability to boost sales volume and also benefited from higher selling price. During 1Q10, Inco sold 18,021 tons of nickel, 23.3% YoY higher from 14,610 tons. Selling price leapt by 70.7% YoY to US$14,182/ton from US$8,309/ton amid robust global nickel price condition.
As such, the company’s profitability jumped as operating margin reached 39.3% in 1Q10 from 4.3% in 1Q09.
• On a quarterly basis, the company also posted significant improvement as net income grew by 27.2% QoQ from US$60.0mn in 4Q09. This growth was driven by the company’s ability to lower its cost on contracts, supply and services. Hence, despite the company using higher diesel and HSFO in 1Q10, Inco managed to increased its profitability where gross margin rose to 41.2% in 1Q10 from 39.4% in the previous quarter.
• During 1Q10, Inco uses 32,000 kl at US$0.59/liter of diesel compared to 24,700 kl at US$0.56/liter in 4Q09. HSFO usage rose to 741,831 barrel at US$76.03/barrel in 1Q10 from 605,706 barrel at US$68.81/barrel in 4Q09.
• Overall, the company managed to post a performance that satisfies our expectation and we currently reviewing our recommendation as the company’s share price has exceeded our target price of Rp4,000. Inco is currently trading at 2010F PER of 13.0x and EV/EBITDA of 7.6x.
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