From: Marzuki
Sent: Thursday, October 08, 2009 9:10 AM
Cc: All Kim Eng Melawai Users
Subject: FW: ANTM (TP Rp3,100); INCO (TP Rp5,200) - Deutsche Bank:
Indonesian metals sector - Higher revised metals price forecasts;
prefer ANTM
________________________________
Indonesian metals sector
Higher revised metals price
forecasts; prefer ANTM
Higher metals prices
Deutsche Bank’s global commodities team has raised metals price forecasts
significantly across the metals complex on: 1) commodities becoming appealing
given the boost in demand from government infrastructure projects and increased
interest in commodities as an inflation hedge; and 2) more legs to the rally in
commodity prices given persistent strong Chinese FAI growth. We raise FY09-11E
earnings and target prices for ANTM and PT Inco on higher metals prices.
We prefer ANTM over PT Inco on gold exposure and higher leverage to nickel
Our commodities team expects gold to hit new highs driven by the resumption in
US dollar weakness and an increase in inflation volatility, which
historically has
been beneficial to gold prices. Central banks' diversification into
gold over the
coming years might imply that in aggregate central banks will be net buyers of
gold for the first time in over 20 years. Meanwhile, Deutsche Bank’s view on
nickel is more neutral near term relative to gold; we expect a more
moderate 2010
outlook. As such, we prefer ANTM over PT Inco due to a) ANTM’s gold exposure –
27% and 35% of FY09F and FY10F cash gross profit), with a 0.7% sensitivity to
every 1% earnings change in gold prices, and b) its higher leverage to
the nickel
price (due to its higher cost structure) in the event of any upward
surprise on the
metal – every 1% change in nickel price results in a 6.2% change in ANTM’s
earnings vs. only 2.6% change in PT Inco’s earnings in FY09F.
Raising earnings estimates and target prices
We have raised our FY09-10 earnings estimates and target prices on much higher
metals price assumptions, mainly gold and nickel. We reiterate Buy on ANTM and
upgrade PT Inco to Buy with higher target prices for both companies.
Target prices based on PBR
Our target prices are derived based on historical PBR to capture the
upside risk on
metals prices. Our revised target prices of Rp3,100 for ANTM and Rp5,200 for PT
Inco are one standard deviation above the respective stocks’ five-year average
forward PBR. Key downside risks include lower-than-expected gold or nickel
prices, higher than-expected production costs (e.g. oil prices), lower
production,
and regulatory risk. See detailed risks to our investment calls in the
individual
company write-ups.
Cherie Khoeng
PT Deutsche Bank Verdhana
Indonesia
Research Analyst
(+62) 21 318 9542
cherie.kho...@db.com
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