Aneka Tambang (ANTM IJ)

Upbeat 3Q24 Operational Outlook

• We expect ANTM to deliver improvements in its 3Q24 operational performance, mainly from FeNi, Ore, and Gold sales.
• Gag Nikel’s CSPA to acquire a minority stake in Tsingshan’s RKEF may represent best option to fulfill its downstream investment requirement.
• Maintain Buy on ANTM with an unchanged TP of Rp2,000. Key risks include lower commodity prices, lower utilization, and project delays.

Positive outlook for 3Q24 operational performance

We are upbeat on ANTM’s 3Q24 operational performance as it plans to offload 3.4kt of Ferronickel inventory that was unsold in 2Q24, in addition to its production run rate of 5kt. Furthermore, with the approval of SDA’s RKAB in Jun24, we expect stronger nickel ore sales from 700kt/mo in 1H24 vs. 1-1.1Mt/mo in 2H24. Finally, we expect gold sales to remain robust due to higher demand and buybacks from the retail segment. Overall, we believe the acceleration of sales volume in 3Q24 could reach our FY24F target (nickel ore: 10wmt, FeNi: 20kt, gold sales volume: 28 tonnes).

Rising nickel ore price is a boon for revenue and margins

ANTM has been selling nickel ore at a slight premium of US$1-3/ ton in 6M24. However, due to the shortage of ores in Sulawesi and Maluku, premiums over benchmark price have considerably risen since 2Q24. Thus, we believe that ANTM could capitalize on the situation and increase its premium from its customers. As the situation persists, we estimate its ore ASP could further rise above the benchmark price for the remainder of the year. When paired with rising production, we believe its ore sales revenue portion could grow from 8.4% in 1H24 to 15% in 2H24, effectively boosting NPM from 6.7% to 10%, translating to c.15% upside from our FY24F estimate.

Positive view on acquisition of RKEF minority stake

ANTM’s subsidiary, Gag Nikel, has signed a CSPA with a subsidiary of Tsingshan on a possible minority investment stake in an RKEF smelter as part of a downstream investment requirement for a concession holder. Assuming a fair valuation of the stake, we believe this investment represents a better option compared to building a new smelter or acquiring a major stake in existing smelters, given the minimal capital spending. Furthermore, the acquisition could provide a captive supply of ore to its smelter, minimizing supply risk.

Reiterate our Buy rating with an unchanged TP of Rp2,000

We reiterate our Buy rating on the potential operational and earnings improvement in 2H24. Our TP of Rp2,000 is unchanged, based on FY24F PE of 16.6x, equal to -0.5x std of its forward PE band. Key risks to our call include lower nickel prices, a lower utilization rate, and project execution delays.

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