Aneka Tambang; Expect stronger earnings in 2Q; Hold; Rp2,300; TP Rp2,500; ANTM IJ - DBS Vickers

At a Glance
· 1Q11 net profit was largely in line with expectation. Expect higher FeNi sales volume in 2Q due to delay in shipment in 1Q.
· Gold production growth and stronger outlook for gold to support FY11F earnings.
· Maintain Hold and Rp2,500 TP.

Comment on Results
Aneka Tambang (ANTM) reported 1Q11 net profit of Rp347bn (+72%y-o-y). This made up 20% of our FY11F estimates of Rp1.8tn but was largely within expectation as we expect higher FeNi sales in 2Q due to delay in shipment in 1Q.

Revenue increased by 20% to Rp2tn underpinned by higher nickel sales volume and selling price. ANTM produced 4,836 tons of FeNi in 1Q and sold only 2,209 tons (+33%y-o-y) due to delay shipment to Europe . ASP was 35% higher ASPat US$12.32/lb (US$27,150/ton). Nickel ore sales rose 25% to 1.6m wmt with ASP at US$45.7/wmt (+1.3%y-o-y). Meanwhile, gold production fell 14%y-o-y to 588k but was largely offset by higher selling prices, which rose 26% to US$1,411/toz. Nickel and gold are estimated to contribute 60% and 35% of FY11F sales.

We expect higher gold production and stronger outlook for gold prices to help support earnings growth this year as we see limited upside for nickel prices. ANTM offers an attractive long-term growth story with total investment of up to US$3.2bn but execution is the key risk.

Recommendation
Maintain Hold, Rp2,500TP based on blended valuation: DCF (12% WACC. 3% terminal growth), 14.0x FY11 PE, and 6.5x EV/EBITDA (5-years average). ANTM currently trades at 12x FY11F PE, which is above the regional peers average of 9.8x.