INCO reported 2Q24 revenue of $248.81 million, up 8.21% QoQ but down 15.88% YoY, slightly missing the 1H24 forecast of $478.75 million. Higher production costs raised cash costs to $9,989/tonne, though kept below $10,000/tonne. Despite an 8.92% QoQ drop in Nickel Matte production and a 3.69% decrease in sales, a 12.35% increase in the LME nickel price boosted the ASP to $14,214/tonne. Consequently, INCO’s cash margin improved to $4,225/tonne, up from $3,194 in 1Q24.

INCO’s net profit was weakened by a derivative asset loss. Despite QoQ improvements due to a low base effect from 1Q24, EBITDA for 6M24 was $132.09 million, down from $276.93 million in 6M23, with the EBITDA margin dropping to 27.59% from 42.02%. A $6.12 million loss from the fair value of a derivative asset related to PT Kolaka Nickel Indonesia, driven by declining nickel prices, impacted net profit. As a result, net profit fell 82.06% YoY to $37.28 million, just 21.86% of the 2024 forecast.

Despite challenges, management is optimistic about meeting production targets and maintaining healthy cash margins. INCO aims to produce 70,800 tonnes of nickel in matte and keep cash costs competitive. For 2024, the revenue forecast has been revised down to $976.98 million with an anticipated net profit of $117.03 million, reflecting expected continued pressure on nickel prices. The LME nickel price is projected to range between $17,500 and $18,000, with INCO’s realization expected at around 78%.

We maintain a BUY rating for INCO with a lower estimated fair value of IDR 4,370/share (implying 29.73x P/E and 1.02x P/BV) based on the DCF method. Despite ongoing weakness in ASP realization, we see potential for improved performance and lower cash costs through the remainder of 2024. Key downside risks include volatility in nickel prices, rising energy consumption and costs, and potential project delays.

By PHINTRACO SEKURITAS | Research
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