What’s New
Timah 9M11 net profit was Rp860b, increasing from 81% y/y from last year. On a quarterly basis, 3Q11 net profit was halved to just Rp171b as tin price plunged by 14% q/q during the period.
One month after Indonesian producers have stopped exporting tin, tin price remains below US$25k/tonne, the cut‐off point for determining whether exports should resume. Tin price hovered between US$20‐23k/tonne in October 2011 and was last traded at US$22k/tonne.
Our View
9M11 profit was higher than our FY11 forecast of Rp787b, but below the consensus forecast of Rp1.31t. However, the boycott means that Timah would not book further revenue from tin exports for the remainder of the year under the worst case scenario.
The export ban looks reasonably justified. In 3Q11, Timah posted all‐in cash cost of US$21.8k/tonne, meaning that it would barely make any money, if it were to resume exports at the current price. Granted, production cost could be lower as Timah buys third‐party ores at the LME‐linked price. However, we doubt that the company, with its poor track record at cost control, could implement such a measure smoothly. It is also a moot point: the ban will remain in place until tin price rebounds to the desired level.
Assuming the worst case scenario, Timah’s revenue for 4Q11 will come only from domestic tin sales and coal sales. Our back‐of‐the‐envelope calculation shows that this meagre income will not cover expenses – Timah will be operating at a loss in 4Q11, if the scenario plays out.
Action & Recommendation
We maintain our forecast and BUY recommendation with Rp2,700 TP for Timah until further development on the export ban. At our TP, the stock is trading at 2012F PER of 11.8x.
Source: KIM ENG dated 2 November 2011
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