ANTM:Waiting game - Mandiri Sekuritas

Delay is expected again!! From our visit to the company we learned that the Chemical Grade Alumina (CGA) Tayan Project is expected to be delayed again due to financing issue. Antam now is waiting for corporate guarantee approval from the government as demanded by the lender consortium. We remain skeptical with the other bauxite-related project like the Smelter Grade Alumina (SGA) that still on feasibility study. The Pongkor’s gold grade is declining and the Cibaliung’s is still low, which leads to higher cash cost per ton. We also doubt that the highly capital-intensive US$1.6bn FeNi IV project could commence on time. Thus, despite attractive valuation due to expected higher nickel price in 2011 and 2012, we are more concerned with the executi on risks of those projects to replace the potential loss from nickel ore revenue in 2014. We maintain our Neutral rating and downgraded our TP to Rp2,400 due to higher discount applied until we get clarity on those projects.

Strong FY10 results. Antam posted unaudited FY10 net profit of Rp1,662bn (+175.1%yoy, +267.1%qoq) which was 5-6% above our estimates. The strong results were supported by strong FY10 ferronickel sales volume of 18,253 tons (+48.9%yoy,-1.0%qoq). Gold production grew modestly to 2.78tons, +5.8% yoy, lower than the company’s earlier year target of 3tons. But it was offset by higher gold selling price of US$1,228/t.oz, +31.1% yoy. Gold sales volume dropped to 6.5tons (-49.1%yoy, - 4.3%qoq) due to lower trading activities.

Modest growth. Ferronickel production is expected to slightly lower and flat at 18k tons in 2011 and 2012 due to 3-month shutdown of FeNi II in 4Q11 and major modernization or upgrade of FeNi I in 2012. We doubt that Antam could meet its FY11F gold production of 3.7-3.8tons, since lower grade from Pongkor and Cibaliung are expected. In the near term, Antam will likely boost nickel ore production to take advantage of the period before the ban on ore exports becomes effective in 2014. This year it is expected to grow by 9.5% yoy up to 7.65mn wmt.

Reiterate Neutral. Prolonged project delay and cancellation would affect our DCF calculation. Valuation wise, Antam looks attractive in the near term which is now traded at only 9.6xPER11F. But we remain cautious due to proven insignificant realization projects historically. We maintain our Neutral rating with lower TP of Rp2,400/share implying only 10.6xPER11F since we prefer to be more conservative by putting higher discount for the execution risk until the realization is seen.