BAHANA Beacon The Spotlight

3 September 2009

Timah

HOLD

Sector: Metal Mining (Neutral)

(from BUY)
Price: IDR1,980
TP: IDR2,200 (From IDR3,000)
JCI: 2,286

Achmad Syafriel

E-mail: achmad.syafriel@bahana.co.id
Phone: +6221 250 5081 ext. 3601

Significant earnings downgrades

2Q09 performance: Some improvement, but weakness persisted
The performance of Timah (TINS) continued to improve in 2Q09 as average
selling price (ASP) hike 14% q-q outpaced the 7.5% q-q increase in costs.
Margin/ ton expanded from USD176/ton in 1Q09 to USD930/ton in 2Q09
(chart 1). This paved the way for gross and operating margin expansion from
7.9% and 1.2% in 1Q09 to 12.8% and 8.1% respectively in 2Q09. Gross
profit doubled to IDR250b while operating profit grew 757% q-q to IDR160b.
However, forex loss of IDR114b dragged down profit and brought down net
profit to IDR28b. In 1H09, sales were down 16% y-y to IDR3.5t while COGS
jumped 39% y-y to IDR3.16t resulting in gross profit significantly falling 81%
y-y to IDR375b. Lower operating expense could not support operating profit
as it declined 89% y-y to IDR179b, only accounting for 9% of our forecast
and 17% of consensus. Thus, net profit declined 96% y-y to IDR43b
accounting for 3% of our full-year forecast and 6% of consensus.
Weaker than expected 1H09 margin per ton
We expect tin price to stay approximately at USD14,500/ton for the
remaining of this year while cost per ton should decline as more high priced
raw material inventories would be used for production, eventually lowering
cost per ton. While this will improve 2H09 performance but we believe our
margin per ton of USD3,900/ ton in 2009 would not be achieved given 1H09
margin per ton of only USD645. Hence, we now lower our full-year 2009
margin per ton to USD2,025/ ton. In 2010, we have also cut our margin per
ton assumption to USD3,600 from USD4,860 previously. Going forward, we
expect some margin support to come from offshore mining which have cost
per ton of around 50% lower than onshore cost. Having said that, TINS has
intensified its offshore mining in 2Q09. Offshore tin-in-concentrate production
reached 70% of 2Q09 total production or 60% of 1H09s level. As many as
36 units of cutter suction dredgers and 12 bucket line dredgers have been in
operation to support offshore mining. In fact, TINS plans to add 1 bucket well
dredger this year to allow TINS to mine 70 m offshore depth. TINS plans to
maintain at least 50% of offshore mining from future total production.
Cut to HOLD with lower TP of IDR2,200
In 2010, we maintain our tin price assumption of USD18,000/ton as we
expect some economic improvements next year to raise tin prices on stronger
demand. In 2009, we maintain our sales volume estimates but we lower our
tin price assumption to USD13,500/ton (USD12,850/ton ytd), expecting
continued tin price volatility with possible price correction to occur sometime
in 4Q09. Additionally, we expect lower margin per ton estimates in 2009-10,
resulting in a significant 63% and 33% cut in net profit respectively. With
lower WACC of 15.8%, we cut our target price to IDR2,200/ share,
translating to 11% upside potential from current levels. Thus, we downgrade
TINS recommendation to HOLD.

Key forecasts and valuations

Year to 31 Dec
2008 2009F 2010F 2011F
Revenue (IDRb)
9,053 7,434 10,201 11,507
EBITDA (IDRb)
2,083
804 1,725 2,221
Net profit (IDRb)
1,342
529 1,241 1,613
EPS (IDR)
267
105
247
320
Growth (%)
(24.8) (60.6) 134.6
29.9
PER (x)
7.4
18.8
8.0
6.2
BVPS (IDR)
759
826
974 1,167
PBV (x)
2.6
2.4
2.0
1.7
EV/EBITDA (x)
4.6
11.9
5.5
4.3
DPS (IDR)
107
42
99
128
Div. Yield (%)
5.4
2.1
5.0
6.5
ROA (%)
23.2
8.6
17.0
19.0
ROE (%)
35.1
12.7
25.3
27.5
Net gearing (%)
nc
nc
0.8
nc
Company information
Share price (9/2/09)
Share outstanding (m)
Market cap. (IDRb/USDm)
3-m avg.daily t.o.(IDRb/USDm)
Bloomberg code

:
:
:
:
:

1,980
5,033
9,965/985
116.1/11.5
TINS IJ

Shareholders information
Government of Indonesia (%)
Free float (%)

:
:

65.0
35.0

Share price performance

(IDR)

(IDR)

3,000

3,000

2,500

2,500

2,000

2,000

1,500

1,500

1,000

1,000

500
9/2/2008

10/24/2008

12/15/2008

2/5/2009

3/29/2009

5/20/2009

7/11/2009

500
9/1/2009

TINS IJ Px Last

Source : Bloomberg

Relative share price performance

(%)

(%)

10.0

10.0

5.0

5.0

0.0

0.0

(5.0)

(5.0)

(10.0)

(10.0)

(15.0)

(15.0)

(20.0)

(20.0)

(25.0)

(25.0)

(30.0)
9/2/2008

10/24/2008

12/15/2008

JCI (LHS)

2/5/2009

3/29/2009

5/20/2009

7/11/2009

(30.0)
9/1/2009

TINS IJ Relative to JCI (RHS)

Source : Bloomberg

Disclosure: Bahana Securities does and seeks to do business with companies covered in its research reports. Investors should consider this report as only a single factor
in making their investment decision.
Please see the important disclaimer information on the back of this report

BAHANA Beacon The Spotlight

PROFIT & LOSS
Year to 31 Dec (IDRb)
Total sales
Cost of goods sold
Gross profit
SG&A expenses
Operating profit
Interest expense
Interest income
Forex gains (losses)
Other income (exp)
Earnings bfr taxes
Income taxes
Earnings bfr minority
Minority interest
Net income

BALANCE SHEET
2008
9,053
6,334
2,719
648
2,070
(40)
42
55
(18)
2,109
(767)
1,342
0
1,342

2009F
7,434
6,182
1,251
456
795
(44)
61
(63)
(15)
735
(206)
529
0
529

2010F
10,201
8,018
2,184
467
1,716
(43)
71
0
(20)
1,724
(483)
1,241
0
1,241

2011F
11,507
8,820
2,687
475
2,213
(43)
93
0
(23)
2,240
(627)
1,613
0
1,613

KEY RATIOS
Year to 31 Dec
ROA (%)
ROE (%)
Gross margin (%)
EBITDA margin (%)
Operating margin (%)
Pretax margin (%)
Net margin (%)
Current ratio (x)
Quick ratio (x)
Dividend payout (%)
Net debt/equity (x)
Inter. coverage (x)
Debt / EBITDA (x)

2008
461
447
3,173
224
4,306
880
600
5,785
366
692
85
498
1,641
42
282
0
3,821
5,785

2009F
1,371
282
2,206
235
4,094
1,412
629
6,135
366
820
70
409
1,665
34
277
0
4,159
6,135

As at 31 Dec (IDRb)
2008
Net profit
1,342
Depr. & amortization
170
Chg in working capital
(1,815)
Other-net
52
Operating cash flow
(250)
Capital expenditures
(576)
Free cash flow
(826)
Acq. & Investments
0
Other - net
70
Dividends
(905)
Total uses of free cash
(835)
S-term debt issued
366
Long term debt issued
21
Change in cash
(1,274)
1,735
Beginning cash balance
Ending cash balance
461

2009F
529
118
1,261
(100)
1,808
(650)
1,158
0
(35)
(212)
(247)
0
(23)
888
483
1,371

2010F
1,515
414
2,977
247
5,152
1,494
661
7,307
366
1,053
96
561
2,077
47
279
0
4,904
7,307

2011F
2,285
451
3,210
259
6,205
1,576
694
8,475
366
1,164
109
633
2,272
53
278
0
5,872
8,475

CASHFLOW
2008
23.2
35.1
30.0
23.0
22.9
23.3
14.8
262.4
69.0
40.0
0.8
51.4
0.2

2009F
8.6
12.7
16.8
10.8
10.7
9.9
7.1
245.9
113.4
40.0
nc
18.3
0.6

2010F
17.0
25.3
21.4
16.9
16.8
16.9
12.2
248.1
104.7
40.0
nc
40.3
0.3

2011F
19.0
27.5
23.4
19.3
19.2
19.5
14.0
273.2
131.8
40.0
nc
51.8
0.2

KEY ASSUMPTIONS
Year to 31 Dec
Prices
Tin price (USD/ton)
Coal price (USD/ton)
Sales volume
Tin (tons)
Coal ('000 tons)

As at 31 Dec (IDRb)
Cash & equivalents
Accounts receivable
Inventories
Other current assets
Total current assets
PP&E - net
Other assets
Total assets
Short term borrowings
Accounts payable
Current maturities
Other current liabilities
Total current liabilities
Long-term maturities
Others
Minority interest
Shareholders equity
Total liabilities & equity

2008

2010F
1,241
118
(670)
141
830
(200)
630
0
(29)
(497)
(525)
0
39
144
1,371
1,515

2011F
1,613
118
(159)
60
1,631
(200)
1,431
0
(34)
(645)
(679)
0
18
770
1,515
2,285

INTERIM
2009F

2010F

2011F

18,692
41

13,500
50

18,000
55

19,500
60

46,438
1,789

45,000
1,800

48,000
1,800

50,000
1,800

3,000

50%

Revenue (IDRb)
Operating profit (IDRb)
Operating margin (RHS)

2,500

40%

2,000
30%
1,500
20%
1,000

CAPITAL HISTORY
Oct-95
Aug-08

Type of action
IPO at IDR2,900 per share
Stock split

Term
10 for 1

Adj. factor
10

10%
500
0%

0
1Q07
-500

PT Bahana Securities Equity Research Timah

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09
-10%

BAHANA Beacon The Spotlight

Chart 1. Timahs margin per ton
25,000

20,000

Margin per ton has improved

to USD930/ton in 2Q09 from
USD176/ton

USD/to
Margin/ton
Average tin price/ton
Delivered cost/ton

15,000

10,000

5,000

7,831
5,212
3,759

8,739

6,415
4,905

4,517

0
1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

-9

176

4Q08

1Q09

930
2Q09

-5,000

Source: Company, Bahana estimates

Table 1. Timahs tin metal production and sales

Tin metal (MT)
Production
Sales

1Q08
11,523
10,176

2Q08
11,469
10,778

3Q08
15,114
13,091

4Q08
10,923
12,393

1Q09
10,462
11,014

2Q09
8,917
13,096

2Q09 sales volume up 19%

q-q and 21.5% higher y-y

1Q09
51.5%
48.5%

2Q09
29.6%
70.4%

2Q09 offshore production

accounted for 70% of total

Source: Company

Table 2. Timahs tin in concentrates production

Tin metal (MT)
Onshore
Offshore

1Q08
70.8%
29.2%

2Q08
74.3%
25.7%

3Q08
70.4%
29.6%

4Q08
64.4%
35.6%

Source: Company

Table 3. Forecast revisions

IDRb
Sales
growth (%)
Gross profit
Gross margin (%)
Operating profit
Operating margin (%)
Net profit
Net margin (%)

Old
2009 2010 2011 2009
8,667 10,687 12,055 7,434
-4.3
23.3
12.8 -17.9
2,429 2,989 3,596 1,251
28.0
28.0
29.8 16.8
1,973 2,522 3,121
795
22.8
23.6
25.9 10.7
1,434 1,848 2,309
529
16.5
17.3
19.2
7.1

New
2010
2011
10,201 11,507
37.2
12.8
2,184
2,687
21.4
23.4
1,716
2,213
16.8
19.2
1,241
1,613
12.2
14.0

% changes
2009 2010 2011
-14.2
-4.5
-4.5
-48.5

-26.9

-25.3

-59.7

-31.9

-29.1

-63.1

-32.8

-30.2

Substantial cuts in 2010-11

earnings on higher cost
assumptions

Source: Bahana estimates

Chart 2. Tin price forecast timeline, 2009F

USD13,000/ton

Jan

USD14,500/ton

Aug

Dec

Tin price to average

USD13,500/ton this year

Average : USD13,500/ton
Source: Bahana estimates

PT Bahana Securities Equity Research Timah

BAHANA Beacon The Spotlight

Table 4.TINS 6M09 results
2Q08
2,391
1,324
1,067

1Q09
1,588
1,462
125

2Q09
1,952
1,702
250

q-q
(%)
23.0
16.4
99.5

y-y
(%)
(18.4)
28.5
(76.6)

1H08
4,203
2,270
1,933

1H09
3,539
3,164
375

%
chg.
(16)
39
(81)

2009F
8,667
6,238
2,429

1H09/
2009F
40.8
50.7
15.4

1H08/
2008
46.4
35.8
71.1

21
141
162
905

16
90
107
19

14
76
90
160

(16.6)
(15.5)
(15.6)
756.7

(34.1)
(46.0)
(44.5)
(82.3)

38
224
261
1,672

30
166
196
179

(20)
(26)
(25)
(89)

68
375
456
1,973

44.8
44.3
43.1
9.1

47.5
39.3
40.3
80.8

11
(6)
19
10
33

3
(16)
20
11
18

5
(18)
(114)
35
(92)

59.6
9.9
(661.7)
218.2
(616.4)

(57.0)
178.3
(701.6)
252.2
(376.7)

28
(8)
(32)
6
(6)

8
(34)
(94)
46
(74)

(73)
350
192
701
1,153

80
(44)
(17)
19

9.5
78.1
na
(268.8)
(385.7)

67.0
18.9
(58.2)
(32.1)
(15.3)

Pretax profit

939

37

68

85.2

(92.8)

1,666

104

(94)

1,992

5.2

79.0

Taxation
Minority interest

314
0

22
0

39
0

77.8
na

(87.5)
na

554
0

61
0

(89)
2,525

558
0

11.0
na

72.3
na

Net profit

624

14

28

95.2

(95.5)

1,112

43

(96)

1,434

3.0

82.8

Others
Gross margin (%)
Operating margin (%)
Pretax margin (%)
Net margin (%)

44.6
37.9
39.3
26.1

7.9
1.2
2.3
0.9

12.8
8.2
3.5
1.4

46.0
39.8
39.6
26.5

10.6
5.0
2.9
1.2

(IDR b)
Sales
COGS
Gross profit
Selling expense
G&A expense
Operating expenses
Operating profit
Interest income
Interest expense
Forex gain (expenses)
Other
Total other income (costs)

28.0
22.8
23.0
16.5

2009
Cons.
6,649

1H09/
Cons.
53.2

1,050

17.0

700

6.1

15.8
10.5

Source: Company, Bloomberg, Bahana estimates

PT Bahana Securities Equity Research Timah

BAHANA Securities
Research (62 21 250 5735/ 250 5081)
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Equity Sales

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