AAA PT Aneka Tambang Tbk Excellent performance

± Operating profit surged 528% yoy
ANTM reported 1H10 net profit of Rp 756.3 bn (+238% yoy, 175% qoq) and operating profit of Rp 1,273 bn (+568% yoy, +171% qoq), an excellent performance which account for 60% of full year estimates on average, driven by robust sales volume growth (38% yoy, 386% qoq) and significant surges in ferronickel ASP (+70% yoy, 0% qoq). 1H10 production of 9,252 tons in line with full year target of 18,500 tons. Gross margin from ferronickel have recovered to 43% with 1H10 cash cost of US$ 5.22/lb vs ASP of US$ 9.3/lb. FY10F net profit of Rp 1.24 tr will be easily achieved in our opinion.

± Significantly reduced gold trading activity - better margin
ANTM’s operating margin has recovered to 30% compared to last year of 4% only since its gold sales volume from trading activities were significantly reduced in order to improve margins. Cibaliung gold mine has started commissioning in May 2010 with production of 30 kgs out of 500 kgs of full year target, with full production capacity of 2,000 kgs. 1H10 Pongkor production up 2% yoy to 1,382 kgs. ANTM’s 1H10 gold cash cost was only US$ 507/t.oz vs ASP of US$ 1,157/t.oz, offering attractive margin up to 50%.

± WIKA is appointed as EPC contractor for CGA project
PT ICA, joint venture of ANTM (80%) and Showa Denko (20%), and the incorporated consortium of WIKA, Tsukishima Kikai Co Ltd and Nusantara Energi Abadi have signed the EPC contract relating to the construction of the Tayan CGA project. Tayan project will start commencing in 1Q 2014 and expected to produce 300k tons of CGA per year, where Showa Denko will absorb 200k tons to substitute the input for its Yokohama plant. We are still waiting for the completion of financial disclosure terms, which will be addressed in 4Q10.

± Maintain TP - Reiterate BUY
We maintain our TP of Rp 2,800 per share and maintain our key assumptions. ANTM historically trades at premium compare to INCO due to its solid balance sheet and liquid trading volume. Beside that ANTM’s diversified business model also offers better risk expsosure to nickel price volatility. Currently ANTM trades at 17 – 13.8x P/E FY10F-11F and 7.5x – 5.9x EV/EBITDA FY10F-11F. ANTM still underperforms JCI by 20% and our Tp implies 25.8% potential upside. We reiterate our BUY rating.