Surabhi Chopra

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/15991" target="_blank" data-smartkarma-citation="entities:15991:1">Aneka Tambang Persero Tbk Pt (ANTM IJ)</a> :ANTM is a state-owned enterprise which is 65% owned by the Government of Indonesia. The Company is listed on the IDX and ASX.  Market cap US$ 1.1 bn (IDR 15.2 tn), share price IDR 625/share. Despite the recent change in regulation which now allows the export of nickel ore provided certain conditions are met, the positive change in the regulations hasn't been reflected in the share price of ANTM, mainly because the the impact has been offset by fall in nickel prices.  ANTM's share price is highly correlated to Nickel prices, though the company is into sale of various commodities, as some 53% of revenues is based on nickel prices while prior to ban it was 78%.  Consensus expects ANTM's net profit of IDR 279 billion in 2017, and the 1Q17 forms less than 1% of the full year estimate, mainly as the reversal of the regulation impact will be seen from 2Q17. Based on consensus estimates, the stock is trading at 58x PE 2017E and 99x PE 2018E (Peers at 45x 2018E). We recommend to take profit as we expect the nickel prices to correct by 7-13% from here to US$8,500-8,000/ton or US$3.6-3.8/lb.  LME Nickel prices are currently hovering at about US$9,189/share (Or US$4.17/lb), while nickel inventory is at one of the highest ever at about 390,000 ton which account for about 20% of global nickel consumption estimated at about 2.1 million tonnes this year. This high nickel inventory in the face of slowing demand for stainless steel from China will drag down prices further. Note that stainless steel forms 69% of total nickel consumption in the world and China is the world's largest producer of stainless steel.  Reasons for slower stainless steel production in China. The main drivers of slower stainless steel production growth are : 1) Chinese government's tougher stance on excess stainless steel capacity and continuing obstacles for Chinese exports, 2) Beijing’s curbs on real estate expansion, and 3) stricter environmental regulations will also hamper increases in Chinese stainless steel production this year.Exhibit 1: Peers<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/025/843/original/ANTM%20peers.JPG?1494475775" class="editor-image img-responsive" data-smartkarma-image-id="25843"></figure><div class="content-caption">Source: Bloomberg</div>

Aneka Tambang Persero Tbk Pt (ANTM IJ) :ANTM is a state-owned enterprise which is 65% owned by the Government of Indonesia. The Company is listed on the IDX and ASX.  Market cap US$ 1.1 bn (IDR 15.2 tn), share price IDR 625/share. Despite the recent change in regulation which now allows the export of nickel ore provided certain conditions are met, the positive change in the regulations hasn't been reflected in the share price of ANTM, mainly because the the impact has been offset by fall in nickel prices.  ANTM's share price is highly correlated to Nickel prices, though the company is into sale of various commodities, as some 53% of revenues is based on nickel prices while prior to ban it was 78%.  Consensus expects ANTM's net profit of IDR 279 billion in 2017, and the 1Q17 forms less than 1% of the full year estimate, mainly as the reversal of the regulation impact will be seen from 2Q17. Based on consensus estimates, the stock is trading at 58x PE 2017E and 99x PE 2018E (Peers at 45x 2018E). We recommend to take profit as we expect the nickel prices to correct by 7-13% from here to US$8,500-8,000/ton or US$3.6-3.8/lb.  LME Nickel prices are currently hovering at about US$9,189/share (Or US$4.17/lb), while nickel inventory is at one of the highest ever at about 390,000 ton which account for about 20% of global nickel consumption estimated at about 2.1 million tonnes this year. This high nickel inventory in the face of slowing demand for stainless steel from China will drag down prices further. Note that stainless steel forms 69% of total nickel consumption in the world and China is the world's largest producer of stainless steel.  Reasons for slower stainless steel production in China. The main drivers of slower stainless steel production growth are : 1) Chinese government's tougher stance on excess stainless steel capacity and continuing obstacles for Chinese exports, 2) Beijing’s curbs on real estate expansion, and 3) stricter environmental regulations will also hamper increases in Chinese stainless steel production this year.Exhibit 1: PeersSource: Bloomberg

Expect Nickel Prices to Correct 7-13%, Take Profit on ANTM