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1、40.6,723,15.7,24 August 2012Asia Pacific/AustraliaEquity ResearchDiversified Metals&MiningIluka Resources(ILU.AX/ILU AU),RatingPrice(24 Aug 12,A$)Target price(A$),OUTPERFORM*V9.60(from 17.80)13.50,RESULTS,Market cap.(A$mn)Yr avg.mthly trading(A$mn),4,019.521,260,Downbeat outlook and production cuts,
2、Last months trading(A$mn)Projected return:Capital gain(%)Dividend yield(net%)Total return(%)56.452-week price range 18.9-8.1*Stock ratings are relative to the relevant country benchmark.Target price is for 12 months.V=Stock considered volatile(see Disclosure Appendix).Research AnalystsMatthew Hope61
3、 2 8205 4669matthew.hopecredit-Paul McTaggart61 2 8205 4698paul.mctaggartcredit-Martin Kronborg61 2 8205 4369martin.kronborgcredit-Total return forecast in perspective,ILUs 1H12 gross profit of$325mn was driven by high prices for theproduct it was able to sell.The forward sales view remains opaque a
4、ndour assumptions are largely unchanged.Our cash-level earnings remainfairly steady,but we have major changes to bottom line NPAT,driven by animproved understanding of ILUs accounting for non-cash inventory change.We have reduced our target price to A$13.50(from$17.80)by applying a20%discount to a r
5、evised DCF.Our rating remains OUTPERFORM.ILUs high level commentary on the market was not encouraging andreinforced our impression that building construction(that drives zircon andTiO2 demand)remains weak in China and Europe.Looking from currentweakness towards winter,we now no longer expect demand
6、to pick up until2013.ILUs production response is to leave JA HMC at the mine site,cuttingtransport costs and potentially zircon inventories,with 2H zircon productionguided to 120kt.It will also cut syn-rutile output by slowing kiln 2 in the WA.Iluka is the worlds largest producer of zircon and secon
7、d largest inhigh grade TiO2 feedstocks.ILU was the first-mover in shrugging off long-term contracts and repricing at higher levels.Mineral sands have nowproven to be exceedingly volatile with zircon and premium grade TiO2feedstocks taking the brunt of the demand downturn.ILU is highly exposed.Cataly
8、ts:ILUs next production report is due in October.A Novemberconference is the typical negotiation forum for buyers and sellers of TiO2product,and any material change arising from the conference would beannounced to the market.Our DCF sum-of-the-parts for ILU is$16.70($18.70 previously).Financial and
9、valuation metrics,Year,12/11A,12/12E,12/13E,12/14E,100%,Revenue(A$mn),1,536.7,1,470.9,2,478.1,2,948.3,50%0%,CS tgt,Sh Prc,*Mean,EBITDA(A$mn)EBIT(A$mn)Net income(A$mn),898.9674.7506.1,1,024.7830.3611.4,1,638.01,463.31,104.5,1,962.61,776.61,346.8,EPS(CS adj.)(Ac),121.53,146.03,263.80,321.67,-50%,Chang
10、e from previous EPS(%),n.a.,-2.3,15.8,18.2,12mth Volaility 52wk Hi-LoCS target return,*Consensustarget returnShare price,Consensus EPS(Ac)EPS growth(%)P/E(x),n.a.1,325.47.9,112.3020.26.6,199.4080.63.6,222.6021.93.0,Performance overAbsolute(%)Relative(%),1M12.36.8,3M-25.0-32.9,12M-41.3-44.5,Dividend(
11、Ac)Dividend yield(%)P/B(x)Net debt/equity(%),75.007.82.6net cash,61.446.42.2net cash,200.0020.81.7net cash,200.0020.81.4net cash,Relative performance versus S&P ASX 200.See ReferenceAppendix for a description of the chart.Source:Credit Suisse,Source:Company data,ASX,Credit Suisse estimates,*Adj.for
12、goodwill,notional interest and unusual items.Relative P/E againstASX/S&P200 based on pre GW in AUD.Company PE calculation is based on displayed EPS Currency,estimates,*Consensus,mean range from Thomson ReutersDISCLOSURE APPENDIX CONTAINS ANALYST CERTIFICATIONS AND THE STATUS OF NON-US ANALYSTS.U.S.D
13、isclosure:Credit Suisse does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report.Investorsshould consider this report as only a single factor in ma
14、king their investment decision.,CREDIT SUISSE SECURITIES RESEARCH&ANALYTICS,BEYOND INFORMATIONTMClient-Driven Solutions,Insights,and Access,c,c,x,x,x,%,x,x,x,2,24 August 2012Figure 1:Financial summary,Iluka Resources(ILU),Year ending 31 Dec,In AUDmn,unless otherwise stated,Share Price:A$9.60,24/08/2
15、012 20:33,Earnings,12/10A,12/11A,12/12E,12/13E,12/14E,Rating,OUTPERFORM,c_EPEquiv.FPO(period avg.),mn,418.7,416.4,418.7,418.7,418.7,Target Pricevs Share price,A$%,13.5040.63,c_EPEPS(Normalised)EPS_EPS Growth,%,8.5,121.51,325.4,146.020.2,263.880.6,321.721.9,DCF,A$,16.70,c_EBEBITDA Margin,%,26.7,58.5,
16、69.7,66.1,66.6,Iluka Resources Limited is an Australia-based company.The principal activities of the,c_DPDPS,8.0,75.0,61.4,200.0,200.0,Company consists of exploration,mining,concentration&separation of mineralsands,production of ilmenite,rutile,synthetic rutile&other titaniferous concentrates etc.,c
17、_PAPayoutFRANFrankingc_FCFree CFPS,%c,93.80.014.7,61.773.2145.8,42.1100.0108.6,75.8100.0209.5,62.2100.0339.6,Profit&Loss,12/10A,12/11A,12/12E,12/13E,12/14E,c_TAEffective tax rate,%,9.6,30.2,30.1,30.0,30.0,Sales revenue,874.4,1,536.7,1,470.9,2,478.1,2,948.3,Valuation,EBITDADepr.&Amort.EBITAssociatesN
18、et interest Exp.Other,233.1(219.0)14.10.0(30.9)69.5,898.9(224.2)674.70.0(8.0)66.8,1,024.7(194.5)830.30.0(1.5)55.5,1,638.0(174.7)1,463.30.048.166.5,1,962.6(186.0)1,776.60.081.965.5,c_PEP/Ec_EBEV/EBITc_EBEV/EBITDAc_DIVDividend Yieldc_FCFCF Yieldc_PBPrice to Book,xx%x,112.6307.218.60.81.53.6,7.95.74.37
19、.815.22.6,6.64.53.66.411.32.2,3.62.32.120.821.81.7,3.01.61.520.835.41.4,Profit before tax,52.7,733.5,884.2,1,577.9,1,924.0,Returns,Income taxProfit after taxMinoritiesPreferred dividendsAssociates&OtherNormalised NPAT,(3.8)48.9(0.0)0.0(13.2)35.7,(218.9)514.6(0.0)0.0(8.5)506.1,(262.9)621.3(0.0)0.0(9.
20、9)611.4,(473.4)1,104.5(0.0)0.00.01,104.5,(577.2)1,346.8(0.0)0.00.01,346.8,c_ROReturn on Equityc_I_N Profit Marginc_I_S Asset Turnoverc_AS Equity Multiplierc_ROReturn on Assetsc_ROReturn on Invested Cap.,%,3.24.10.51.71.80.9,33.032.90.61.620.634.4,33.141.60.51.522.437.7,46.844.60.81.336.857.7,47.045.
21、70.81.238.173.2,Unusual item after tax,0.0,35.6,0.0,0.0,0.0,Gearing,Reported NPAT,35.7,541.7,611.4,1,104.5,1,346.8,c_GENet Debt to Net debt+Equity,21.8,Net Cash,Net Cash,Net Cash,Net Cash,c_NENet Debt to EBITDA,1.3,Net Cash,Net Cash,Net Cash,Net Cash,Balance SheetCash&equivalents,12/10A30.1,12/11A32
22、0.7,12/12E448.0,12/13E605.0,12/14E c_I_EInt Cover(EBITDA/Net Int.)1,190.1 c_I_EInt Cover(EBIT/Net Int.),7.50.5,112.484.3,692.4561.0,-34.1-30.4,-24.0-21.7,InventoriesReceivables,200.9164.8,376.2256.1,514.7282.1,428.1541.7,251.5(c_C_Capex to Sales606.4(c_C_Capex to Depreciation,%,13.485.6,9.3101.0,12.
23、4154.2,4.7111.6,8.3218.7,Other current assets,0.0,0.5,2.6,2.6,2.6,Current assetsProperty,plant&equip.IntangiblesOther non-current assetsNon-current assetsTotal assetsPayablesInterest bearing debtOther liabilitiesTotal liabilities,395.81,425.17.1111.91,544.11,939.9103.8342.7368.8815.3,953.51,430.46.7
24、63.21,500.32,453.8136.7164.0618.4919.1,1,247.41,428.26.549.91,484.62,732.1135.3149.0601.7886.0,1,577.41,370.66.549.91,427.03,004.4164.620.9460.4646.0,2,050.51,428.66.549.91,485.03,535.5186.021.3460.4667.7,MSCI IVA(ESG)Rating BBB6.85.84.83.82.8,Credit Suisse ViewTP ESG Risk(%):-3.9TP Risk Comment:We
25、include rehabilitationprovisions in our TP based on environmentalrequirements,Net assetsOrdinary equity,1,124.61,124.6,1,534.71,534.7,1,846.01,846.0,2,358.42,358.4,2,867.82,867.8,1.8,Environment,Social,Governance,Minority interestsPreferred capitalTotal shareholder fundsNet debtCashflowEBITNet inter
26、estDepr&AmortTax paidWorking capitalOtherOperating cashflowCapex,0.00.01,124.6312.612/10A14.1-29.4219.0-1.5-136.2112.7178.7-117.2,0.00.01,534.7-156.712/11A674.7-10.9224.2-12.5-233.7107.7749.5-142.5,0.00.01,846.0-299.012/12E830.30.7194.5-270.3-166.048.4637.6-183.0,0.00.02,358.4-584.112/13E1,463.348.1
27、174.7-614.6-143.666.5994.3-117.0,0.00.02,867.8-1,168.812/14E1,776.681.9186.0-577.2133.365.51,666.1-244.0,Stock Local Sector Country Global SectorSource:MSCI IVA RatingShare Price Performance20.0018.0016.0014.0012.0010.008.00,Capex-expansionaryCapex-maintenance,6.00,Acquisitions&InvestAsset sale proc
28、eeds,9.00.0,3.90.0,1.20.0,0.00.0,0.00.0,4.002.00,OtherInvesting cashflowDividends paid,0.0-108.20.0,0.0-138.6-117.0,0.0-181.8-313.0,0.0-117.0-592.2,0.0-244.0-837.4,0.0015/08/2011,15/10/2011,15/12/2011,15/02/2012,15/04/2012,15/06/2012,15/08/2012,Equity raisedNet borrowings,0.0-116.4,0.0-182.0,-0.6-6.
29、7,0.0-130.6,0.00.0,ILU.AX,XJO,Other,-9.8,-21.3,-8.8,0.0,0.0,1 Month,3 Month,12 Month,Financing cashflowTotal cashflow,-126.2-55.7,-320.3290.6,-329.1126.7,-722.8154.5,-837.4584.7,AbsoluteRelative,12.3%6.8%,-25.0%-32.9%,-41.3%-44.5%,Adjustments,-0.5,0.0,0.6,2.5,0.3,Net change in cash,-56.2,290.6,127.3
30、,157.1,585.0,Source:Reuters 52 week trading range:8.14-18.88,Source:Company data,Credit Suisse estimatesIluka Resources(ILU.AX/ILU AU),3,24 August 2012,Downbeat outlook and production cuts,With sales and cash costs already revealed in the quarterly reports,most items comprisingthe gross profit in IL
31、Us result were known,so this part of the result was in-line.But NPATwas not,due to the large accounting entries for inventory build-up.,What we were looking for from the result and conference call were:,An update on the mineral sands demand outlook,ILUs production response,The MAC royalty income,and
32、,The accounting lines that ILU uses to book its inventory build.,There were two conference calls on the day.The second was to explain to mystifiedanalysts and investors,ILUs arcane accounting policies that will swing the NPAT in thefuture,as hefty mineral sand inventories move in and out of the acco
33、unts.,Update on mineral sands demand outlook,ILUs CEO was not keen to elaborate on the demand trends for mineral sands seen sinceILU downgraded sales guidance in early July.Most of the commentary was high-level andbackward looking,referring to the JunQ.ILU suggested that China building activity mayh
34、ave been lower than government statistics suggest.Weakness in Europe continued withboth domestic and export markets reporting soft demand.US demand was mostly stable,but there was some evidence of softening manufacturing output in Q2.,Nevertheless,we probably dont need ILUs guidance to figure out th
35、at the demandenvironment remains difficult.,Zircon:Demand looks set to remain feeble for the rest of the year,China iron ore and steel prices are currently in free fall,which is not a signal of a robustconstruction sector.That country will probably require some major stimulus projects to pickup the
36、economy and this is most likely after the October leadership transition.Constructiontends ease into winter in China anyway,so Chinas zircon demand looks set to remainweak for the remainder of the year.There remains few signs of life in Europe and noapparent prospect of industrial production picking
37、up,so the worlds alternate zircondemand engine remains stalled.,The downturn in zircon was so sharp that we remain confident that there is a large cyclicalcomponent.Ultimately we expect demand will return in 2013 weaker than previously,but a substantial uplift on weak sales this year.We consider par
38、t of the reason thatdemand is so volatile is due to the steady high price that producers are maintaining.Ifthere is no flex in the price to respond to demand,then the flex will occur on sales for thedownstream to manage working capital.,ILU noted that China had seen advanced tile-making technology c
39、atch up with the tilemanufacturers in that country.This reduces zircon demand,but ILU could not quantifywhat proportion of zircon demand had been lost to thrifting and substitution.It suggestedthe technology changeover was complete.,TiO2:No change of heart from pigment producers,We can watch pigment
40、 makers to see that the TiO2 sector remains flat.The constantstream of pigment maker announcements of quarterly price increases that occurred in2011,has been replaced by a complete silence.Kronos announcement was an exception,recently announcing a price increase,but this was for regions outside the
41、core markets ofEurope and US.If pigment makers are not seeing demand strength,then their orders forfeedstocks will be weak to non-existent.,Iluka Resources(ILU.AX/ILU AU),4,24 August 2012,The TiO2 sector is the one that concerns us the most from ILUs perspective.,Weak demand for rutile and synthetic
42、 rutile is largely a result of the Northern Hemispheresummer painting season being weak.Pigment makers have been left with high inventoriesand are trying to destock.One way to do this is to cut out the high grade feedstocks rutile and syn-rutile(+90%TiO2)while maintaining a base load of lower grade
43、slags(86%TiO2).This decision was particularly easy in 2012 given a large proportion of slagproduction remains under low-priced legacy contracts,whereas ILUs rutile and syn-rutilecontracts are short-term with extreme prices.,Step forward into 2013 and the picture becomes confused.We are likely to see
44、 the two bigchloride slag-makers change pricing to shorter-term contracts as they have previouslysignalled,and they will try to win higher prices.This change may make ILUs prices forrutile and SR less extreme relative to the market.However,on the negative side,we haveseen one big Western pigment con
45、sumer licence its chloride technology to Chinesepigment maker Henan Billions,with an off-take agreement,hence demand for Westernpigments may be easing.We are not certain what feedstock Henan Billions would use,butbelieve its more likely to be Chinese chloride slag(manufactured from ilmenite sands th
46、atare found in parts of China)than ILUs rutile or syn-rutile.,Meanwhile,reformulation of paints to cut over-use of pigments is on-going and somepigment consumers are starting to mix Chinese pigment with Western product.The oldmodel global pigment demand matching global GDP,reflected by production fr
47、om thebig five producers who buy from ILU seems to be over.It seems clear that China isbecoming a big player in Western pigment supply.We cant really predict how the situationwill play out or what role ILU and its premium grade chloride products will play in the futuremarket.,ILUs production respons
48、e to a quiet demand,ILU has always indicated it will match its production to market demand,but probably didnot expect that demand would be quite as weak as it actually is.The response to theupdated sales guidance of early-July will clearly influence ILUs financial outlook.,Zircon:JA HMC will remain
49、at the mine,ILU lowered zircon production guidance to 120kt for the second half(330kt full-year)as all JA concentrate will be stockpiled on site rather than be processed.Otherfinished products from the same mine will likely be lower as a result,but no specificguidance was issued.,TiO2:Cut synthetic
50、rutile output,For TiO2,ILUs response is to reduce feed rates and output at SR kiln 2 and use thekiln for further product testing and grade optimisation.Furthermore,reactivation of SRkiln 1 will be pushed back until at least late 2013(we already assumed 2014).,Costs and capex,Unit cost per ton at$709
