BNIS Short

BNIS Short Notes Notes

ANTM (PT Aneka Tambang Tbk)

Analyst: EQUITY RESEARCH

Firman Hidayat
firman.hidayat@bnisekuritas.co.id January 14, 2021

Riding on EV Hype
BUY
What’s New?
 We retain our BUY call and raise our target price for ANTM from TP: IDR 4,500
IDR1,200 to IDR4,500 as we lift our nickel price assumption and we see
good progress in downstream projects.
Stock Data (as of January 13, 2021)
Key Highlights: Last Price IDR 3,120
 We are optimistic on nickel sector’s long-term prospect in light of the 52wk Range IDR 338-3,130
global nickel supply deficit is on the cards.
YTD % Change 273.7%
 Robust nickel sales volume target boosted by higher production from 1 Year Total Return 383.8%
several new downstream projects further.
Share Outstanding 24,030.8 mn
ANTM stock price has rallied 380% YoY driven by robust nickel industry outlook Market Capitalization IDR 74,980.9 bn
coupled with strong domestic EV battery development sentiment which is Floating Rate 35.0%
estimated to be worth USD20bn. Presently, we think that investors are still
concerned about ANTM’s valuation and how the ANTM stock price trending up Previous Recommendation BUY / IDR 1,200
could be sustained further. Here are our calculations on several ANTM's new Shareholders
revenue booster from downstream project in 2021F-2025F:
PT Indonesia Asahan 65.0%
Project #1: New ferronickel smelter in East Halmahera Alumunium (Persero)
This project has been completed and ready to operate and produce additional Public 35.0%
3,300 TNi ferronickel in 2021F with max capacity of 13,500 TNi/year around
four years after it starts operation due to the nature of nickel smelter which
usually has a ramp-up period for trial run of the facilities. However, ANTM has
a ferronickel production capacity of 27,000 TNi in Pomalaa and with the new
plant with a capacity of 13,500 TNi in Haltim, the total output of ferronickel
would be 40,500 TNi per year starting 2025F.

Project #2: New ferronickel smelter in Sorong

ANTM plans to build a nickel smelter with capacity around 40,000 TNi in the
Sorong Special Economic Zone and is exploring potential international JV
partner. It will grow by supplying nickel ore to more domestic nickel
producers, supported by the government’s introduction of nickel ore Source: Bloomberg, BNIS Research
benchmark pricing system to prevent dumping. This project is estimated ready
to operate in 2022F.

Project #3: The Electric Vehicles (EV) batteries project

Mining Industry Indonesia (MIND ID) formed an integrated EV JV company
from upstream to downstream dubbed Indonesia Battery Holding (IBH). The
consortium comprises PT Pertamina, PT ANTM, PT Inalum and PT PLN. On this
project, ANTM has a role in supplying and processing nickel ore into nickel
sulphate. Further, with potential investments up to USD20bn from two of the
largest battery makers namely LG Chem and CATL, we have done a rough
calculation to estimate potential revenue for ANTM as a supplier nickel
sulphate in this project. Our calculation using benchmark from The Battery Source: Bloomberg, BNIS Research
Performance and Cost Model (BatPAC) developed at Argonne National
Laboratory for lithium-ion battery packs used in automotive transportation.
We estimated ANTM would book additional revenue around IDR4,600bn from
nickel sulphate sales to fulfill the raw materials for the battery factory (see on
Exhibit 1 for details our calculation). We expected this project to be ready for
operation in 2023F due to Government of Indonesia targeting EV to account
for 20% of Indonesia’s car production by 2025F through various incentives.

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More bullish on nickel prices outlook

We are cautiously optimistic on nickel long-term prospect. Here are our key
reasons:

 For 2021F-2025F at least, we expected the global nickel supply-demand

balance to be in deficit backed by strong demand growth from stainless
sector and EV industry. Moreover, continued supply shortage is expected
due to tightness in ore nickel supply traded in the global market.
 We estimated when EV market share of all vehicles sales climbs to 40% in
2030F that would drive up nickel consumption in batteries needs to rise
to 30% of global nickel supply in 2030F vs. 6% in 2020F.
 For refined nickel, we expected the supply growth to continue lagging
behind the demand growth in the stainless steel industry underpinned by
China’s refined nickel production to continue declining due to
environmental regulations on smelters in China.
 Cost of raw materials for stainless steel using Indonesia's NPI production
would have an advantage over other ingredients when nickel prices rise
led by EV battery production.
 For mid-term, global nickel price could exceed and be stable above
USD20,000/ton and is likely to reach USD23,000/ton, in our view.

Robust revenue growth from nickel segment

For 2021F/2022F/2023F ANTM’s revenue is estimated at 38.4%/36.3%/22.3%
YoY growth underpinned by several new nickel downstream projects onwards
to boost its revenue. Meanwhile, the B2B refinery and gold segment
contribute most to revenue, in total accounting for 70% of our 2021F
estimates, albeit the percentage of revenue from the gold segment will
continue to decline to only 43% in 2025F, offset by the revenue from nickel
segment. Gold sales volume is expected to increase 5.0% YoY as we expect
conservatively global gold price to average USD2,000/oz for this year, in our
model.

Furthermore, ANTM’s net profit in 2021F/2022F/2023F may grow

70.3%/54.7%/29.3% YoY based on lower interest rate outlook on ANTM’s USD
borrowing to below 5%, booked gain in forex as expected USD/IDR weakened
and net margin quite stable supported by the hike in ferronickel and nickel
sulphate sales volume as we believe that will benefit from the EV boom.

Maintain BUY and upgrade our TP

Based on the thesis discussed above, the progress of downstream expansion
projects is ANTM’s key attractiveness onwards. Hence, we upgrade our TP for
ANTM from IDR1,200 to IDR4,500 using DCF based valuation method (WACC of
12.7%, a risk free rate of 6.8%, market risk premium of 5.0%, beta of 1.2) to
capture ANTM’s fair value.

Key risks are mainly from potentially lower revenue in the event that the
smelter project progress misses the target. The other downside risks stem
from the declines in commodities prices due to a worsening outbreak which
may lead to a prolonged lockdown.

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APPENDIX

Exhibit 1. Our rough calculation a potential revenue for ANTM as a supplier nickel sulphate in battery project

Investment Costs (USD mn) Unit Cost of Battery Pack (USD)

Capital equipment cost including installation (USD mn) 465 Variable Cost:
Materials and Purchased Items
Building, Land and Utilities: Cell materials 7,281
Area, m2 53,903 Cell purchased Items 160
Cost, USD/m2 3,000 Module 934
Building investment (USD mn) 162 Battery pack 305
Total 8,680
Launch Costs:
Rate: 5% of direct annual materials + 10% of other annual costs Direct Labor at: USD18/hour
Total (USD mn) 49 Electrode processing 110
Cell assembly 59
Working capital (15% of annual variable costs), (USD mn) 139 Formation cycling, testing and sealing 39
Module and battery assembly 31
Total investment (USD mn) 815 Cell and materials rejection and recycling 17
Receiving and shipping 27
Annual Factory Capacity Control laboratory 20
Number of battery packs manufactured per year (Unit) 100,000 Total 304
Energy (kWh per year) 12,800,000
Number of accepted cells per year 24,000,000 Variable Overhead 293
Total Variable Cost 9,276
Battery Spesification per Pack
Vehicle electric range (kilometers) 582 Fixed Expenses:
Number of battery packs 1 General, Sales, Administration 363
Number of cells per pack 240 Research and Development 342
Battery energy storage (kWh) 128 Depreciation 855
Battery mass (kilograms) 352 Total Fixed Expenses 1,560

Total cost per pack (USD/unit) 10,837

Total cost in max capacity (USD mn/unit) 1,084

Indonesia EV Battery Project Potential ANTM's Revenue

Assumption: Assumption:
Estimated FDI into nickel-based batteries (USD mn) 20,000 1 battery pack on average of around 60kg nickel (ton/pack) 0.06
Estimated number of factories that can be built (Unit) 11 (Based on Deloitte research)
Number of battery packs manufactured (Unit/year) 1,100,000 Amount of nickel sulphate volume required (ton/year) 66,000
Total installation (Gwh) 14 Nickel sulphate price (USD/ton) as of 13/1/2021 5,000

Estimated additional annual revenue in max capacity (USD mn) 330

Estimated additional annual revenue in max capacity (IDR bn) 4,620
Source: BatPac Argonne national laboratory, BNIS Research

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APPENDIX

Exhibit 2. SOEs supply chain in the EV Industry

Source: MIND ID, MEMR, BNIS Research

Exhibit 3. Business comparison INCO vs. ANTM Exhibit 4. EV/EBITDA 12-month forward in last 5-years

2019 Unit INCO ANTM

Nickel ore production mn wmt 12.5 8.7

Refined nickel production k tons 71 25.7
Nickel reserves & resources mn tons 107.6 353.7
Nickel % to revenue % 100% 26%
Cash cost for refined nickel USD/ton 7403 8708
EBITDA margin % 28.3 5.9
ROE % 3 1.1
Sources: Company data, BNIS Research Sources: Bloomberg, BNIS Research

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APPENDIX

Exhibit 5. Global nickel market supply and demand forecast scenario in 2021F-2025F

Source: International Nickel Research Group (INSG), BNIS Research

Exhibit 6. U.S electric vehicle sales movements Exhibit 7. Car’s oil consumption decreasing further

Sources: Bloomberg Intelligence, BNIS Research Sources: IEA, BNIS Research

Exhibit 8. CAGR of battery demand growth by vehicle Exhibit 9. China PMI index showed V-shaped rebound

Sources: IEA, BNIS Research Sources: Bloomberg, BNIS Research

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FINANCIAL HIGHLIGHTS

Income statement Balance Sheet

Year end Dec 31 (IDR bn) 2020F 2021F 2022F 2023F Year end Dec 31 (IDR bn) 2020F 2021F 2022F 2023F
Revenue 24,472 33,870 46,180 56,479 Cash 3,328 6,446 5,067 8,394
COGS (20,416) (28,936) (39,095) (46,672) Receivables 330 2,107 1,183 2,840
Gross profit 4,056 4,934 7,085 9,807 Inventories 1,560 2,880 3,547 4,125
Operating expense (1,958) (2,710) (3,694) (4,518) Total Current Assets 6,243 12,346 10,766 16,301
EBIT 2,098 2,225 3,391 5,289 Net Fixed Assets 21,090 23,108 26,447 32,644
Depreciation 1,319 1,369 1,510 1,710 Other Non Current Assets 3,686 3,958 3,822 3,890
EBITDA 3,417 3,594 4,900 6,999 Total Assets 31,564 39,139 41,171 52,766
Interest expense (978) (255) (238) (287) Payables 1,237 2,251 534 2,791
EBT 1,536 2,545 3,938 5,962 ST Bank Loan 4,338 2,914 2,944 6,547
Income tax (415) (636) (984) (2,143) LT Debt 5,603 8,320 8,404 8,457
Minority interest (1) (1) (2) (3) Total Liabilities 11,683 16,671 15,380 22,758
Net Profit 1,121 1,908 2,951 3,816 Capital Stock + APIC 6,338 6,338 6,338 6,338
Retained Earnings 10,196 12,519 15,979 20,132
Total Equities 19,881 22,468 25,791 30,009

Margin & Growth Profitability & Stability

(%) 2020F 2021F 2022F 2023F (%) 2020F 2021F 2022F 2023F
Gross margin 16.6 14.6 15.3 17.4 ROE 5.9 9.0 12.2 13.7
EBIT margin 8.6 6.6 7.3 9.4 ROA 3.6 5.4 7.3 8.1
EBITDA margin 14.0 10.6 10.6 12.4 ROIC 5.1 5.0 6.8 7.5
Net profit margin 4.6 5.6 6.4 6.8 Dividend Yield 0.1 0.2 0.6 0.6
Revenue growth -25.2 38.4 36.3 22.3 Dividend Payout Ratio 8.0 7.9 13.6 10.5
Net profit growth 478.0 70.3 54.7 29.3 Debt Equity Ratio 50.0 50.0 44.0 50.0
Net Gearing 78.9 75.3 61.7 66.6
LT Debt to Equity 28.2 37.0 32.6 28.2
Cash Flow Capitalization Ratio 33.3 33.3 30.6 33.3
Year end Dec 31 (IDR bn) 2020F 2021F 2022F 2023F Equity Ratio 63.0 57.4 62.6 56.9
Operating Cash Flow 2,305 3,978 3,261 7,038 Debt Ratio 31.5 28.7 27.6 28.4
Net Income 1,121 1,908 2,951 3,816 Financial Leverage 158.9 149.1 162.2 147.6
Depreciation 1,319 1,369 1,510 1,710 Current Ratio 115.8 161.3 171.4 119.8
Other Non-Cash Adj (134) 701 (1,200) 1,512
Investing Cash Flow (4,028) (2,834) (5,126) (7,769) Valuation
Capex (1,224) (3,387) (4,849) (7,907) (X) 2020F 2021F 2022F 2023F
Other Investing Activity (2,804) 553 (277) 138 Price /Earnings 55.8 37.2 24.0 18.6
Financing Cash Flow 1,414 1,974 486 4,057 Price /Book Value 3.1 3.2 2.7 2.4

Dividends Paid (90) (150) (400) (400) Price/Sales 2.6 2.1 1.5 1.3
Change in Debt 791 1,294 114 3,656 PE/EPS Growth 0.1 0.5 0.4 0.6
Other Financing Activity 714 830 772 801 EV/EBITDA 21.2 22.1 16.5 11.6
Net Changes in Cash (308) 3,118 (1,379) 3,327 EV/EBIT 34.5 35.6 23.8 15.3
Sources: Company data, BNIS Estimates

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