International Nickel Indonesia (INCO IJ, Rp4,975 BUY) Unaudited FY10 results inline - Danareksa Sekuritas

Highlights:
- Nickel in matte production declined by 10% qoq in 4Q10 to 17,996 tons due to scheduled furnace #3 roof repairs and partial relining of reduction kilns #3 and #4. On a yearly basis, FY10 production increased by 12.9% yoy to 75,989 tons.
- FY10 unaudited revenues reached US$1,276mn (+67.7% yoy), or in line with our expectations. The bottom line also sees a vast improvement from last year’s low base, with the FY10 unaudited net income reaching US$437.4mn (+156.6% yoy), also in line with our expectations.

Comments:
- Higher realized ASP offset the increase in oil prices. Thanks to higher realized ASP, margins saw an improvement in 4Q10 albeit the increase in the COGS/t due to higher oil prices. On a full year basis, FY10 margins were better than our expectations. This was thanks to lower realized prices for HSFO and HSD used during FY10.
- The decline in this year’s production will be offset by higher nickel prices. Although this year’s production is expected to decline due to the overhaul of smelter #2, we believe this will be offset by the increase in nickel in matte ASP. Also, better efficiency will be seen if the Karebbe hydro power plant starts to commence operations in the second half of 2011.
- Maintain BUY. We are awaiting the audited FY10 financial results that will provide more details for further analysis. In the meantime, we maintain our current forecast for INCO with a TP of Rp5,875, implying P/E 11-12F of 13.0-11.0x.