UOB International Nickel Indonesia – BUY TP IDR 5000

Expect flat revenue growth in 2Q10

What’s New
•Higher nickel prices in 2Q10. Despite the downturn in the globaleconomy as a result of the impact from the European debt crisis andannouncement by China to slow down its strong economic growthcaused by lower London Metal Exchange (LME) nickel prices since May10 to a level of US$18,000-20,000/tonne, average LME nickel prices stillincreased 11.3% qoq as LME nickel prices increased 46% toUS$27,227/tonne in Apr 10, driven by strong nickel demand followingrestocking by stainless steel producers in early-10.

•Lower nickel-in-matte production in 2Q10. International NickelIndonesia’s nickel-in-matte production in 2Q10 would be lower due to atwo-week furnace maintenance shutdown in early-Apr 10. However, webelieve 2Q10 nickel-in-matte deliveries may not be affected by theshutdown as part of 2Q10 deliveries could be fulfilled with the additionalinventory of 1,790 tonnes in 1Q10.

•Water level improvement minimised thermal power use. The waterlevel for hydro power plants reached the maximum level in 2Q10,thanks to heavy rainfall. As such, the company is maximising the use ofits hydro power plant while reducing its use of thermal power. This ledto lower cost in the quarter.

•Completion of Karebbe project by 2H11 to reduce energy costs.The completion of the company’s third hydroelectric power-generatingplant, worth US$410m, at Karebbe by 2H11 is expected to reduceenergy cost, which accounted for about 34% of total cost in 2009.When completed, the plant’s hydropower will replace oil and gas infeeding the electric furnace at the Sorowako facility.

Stock Impact
•Flat quarterly top-line growth. We expect flat quarterly growth in thecompany’s top-line in 2Q10 as lower nickel-in-matte production offsetthe impact of the additional inventory of 1,790 tonnes from 1Q10 andhigher LME nickel prices in 2Q10.

•Nickel prices to stabilise in 2H10. We expect lower nickel prices ofUS$17,500-18,500/tonne in 2H10 as demand for nickel productscontinued to grow at a slower rate than in 1H10. This was due to therestocking of (mostly finished) nickel by stainless steel producers, andshort-term demand will only come from final consumer demand, and thepotential impact of the European debt crisis