Vale Indonesia Robust 4Q12 earnings

Vale Indonesia: Robust 4Q12 earnings, FY12 results below consensus (Under review)

• FY12 results below consensus – INCO reported FY12 net profit of US$67mn (-80%YoY), about 20% below consensus, as operating profit down 75% YoY to US$115mn with margin compressed to 12% from 37% in FY11, mostly due to lower ASP which dropped 26%YoY to US$13,552/t and higher project development cost (related to Bahodopi development, project CEPAT and operational maintenance improvement program) which up by 32%YoY to US$39mn and 3 times higher finance cost of US$15.5mn as the grace period of the loan facility end in late 2011. FY12 production volume grew modestly by 6% to 70,717 tons.

• All-time high production in 4Q12 with excellent efficient operations boost bottom line – Robust 4Q12 bottom line of US$39mn (+178%YoY, +65%YoY) as operating margin improved to 20% vs 10% in 4Q11 or 15% in 3Q12. All-time high production volume in 4Q12 at 21,306tons (+55% YoY, +4%QoQ) led to stronger economic of scale with excellence efficient operation in fuel consumption supported by higher power contribution from hydropower (see exhibit 3). 4Q12 ASP was US$13,176/t (-12%YoY, +5%QoQ).

2013 Outlook – Annualizing 4Q12 production capacity would come out at 84k tons full-year capacity. However, due to seasonality and ongoing maintenance program, Company only expects 10% growth volume or about 77k tons production in 2013. Further details for 2013 business plan & guidance will be discussed with the BoD in the conference call on Monday, 4 March 2013 at 4pm Jkt time.
Currently, we’re reviewing our rating and forecasts on the counter. With consensus top line of US$1,120mn, it implies ASP of US$14.5k/ton which is 12% lower than current LME nickel spot price of US$16.5/t and expecting 24% operating margin. Based on consensus INCO trades at 14.7x P/E for 2013.

Related article: Vale Indonesia: Key takeaways from conference call with the BoD