Timah Production risk clouds strong price outlook - DBS Vickers

At a Glance
FY10 results above our estimates on higher ASP and lower effective tax rate.
Strong tin price will continue to drive earnings, however, production might be at risk due to poor weather condition.
Maintain Fully valued, TP raised to Rp2,350 (from Rp2,300) following earnings revision.

Comment on Results
Timah reported 202% increase in FY10 earnings to Rp948bn, exceeding our FY10 forecast of Rp712bn by 33%. The strong results were attributed to higher ASP to US$19,500/ton (+50%yoy) while sales volume fell by 19% to 40,000 tons as production was disrupted by bad weather. Looking ahead, we believe the strong tin price outlook will continue to drive earnings, while production might be at risk due to weather problem as Timah now relies on offshore mining to meet their production target. We therefore lowered our FY11/12F production by 9%/5% to 40,000/42,000 tons respectively to account for production risks. Note that TINS sales volume has fallen from 59,000 tons in 2007 to only 40,000 tons in 2010. We also raised our FY11/12F ASP by 15%/11% to account for high spot
price. Our FY11F ASP is 20% below spot price. Following the revised assumptions, our FY11/12F earnings are raised by 5%/4%.

Recommendation
Maintain fully valued, TP raised to Rp2,350 (from Rp2,300) to reflect the earnings revision and based on blended valuation of 12.5x FY11F PE and 3.0x P/BV (3-years average) and (DCF (11%WACC, 3% terminal growth).