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Kamis, 14 April 2011

TINS:Cheap metal stock - Mandiri

TINS surprisingly booked FY10 net profit that was 30%-40% above our estimates and consensus followed by stronger margin following tin price hike in 4Q10. TINS confirmed there is no major impact on its export sales to Japan since there is no big electronic producer in devastated area. Interestingly, the Ukrainian nuclear specialist, Chernobyl team, recently suggested that low melting and chemically neutral metal like tin could be used to cool down Fukushima nuclear reactor. This should become a positive catalyst for tin demand amid anti global nuclear power plant following Japan disaster. We have positive view on tin sector outlook but in the company level we found some discrepancy regarding its cost control in the past. However, with tin price level of above US$30k/ton, it could support its valuation. We upgraded our rating to Buy with higher TP at Rp3,600/share implies 12.0xPER11F.

Robust FY10 results. Timah reported FY10 net profit of Rp948bn (+202.2% yoy, 208.9% qoq) followed by stronger FY10 ASP of US$19,869/ton (+46.5% yoy, +28.8% qoq). Timah produced refined tin of 40,413tons (-10.4% yoy, +18.5% qoq). Surprisingly gross margin surged significantly from 15.8% in 3Q10 up to 34.5% in 4Q10, which was mostly caused by laggard on its tin ore concentrate purchases. As a result 4Q10 operating margin doubled to 25.2%.

Will 4Q10’s margin be sustained? Significant higher margin in 4Q10 occurred since TINS moved towards low cost mining area followed by unexpectedly significant surged in tin price. At higher tin price, TINS will economically mine in high cost mining area. Considering its weighted average inventory approach, TINS’s delivered cost should follow the ASP’s trend (as seen in exhibit 3). Therefore we expect TINS’s 1Q11’s gross margin should be adjusted downward.

Strong tin price outlook. Average LME tin price in 1Q11 has reached US$29.9k/ton suggesting 21.2% qoq increase vs TINS’s 4Q10 ASP. Tin price continuously surged to its record high of up to US$33k/ton this week supported by strong tin outlook forecast from consensus until 2012. To fully incorporate this momentum we revised up our ASP by 5.3% respectively up to US$30k/ton in FY11F onwards. As a result, we upgrade our earnings in FY11F and FY12F up to Rp1,513bn (+34.3%) and Rp1,820bn (+19.3%) respectively. Our new forecasts only imply 24.7% gross margin and 18.6% operating margin, slightly higher than previously.

Upgrade Buy, higher TP. Based on our new forecasts we derived higher blended ASP for TINS at Rp3,600/share implying only 12.0xPER11F. Currently TINS is traded attractively at 9.4xPER11F, one of the cheapest stocks in the metal industry and wider divergence between tin price and TINS’s price suggest buying opportunity.
Posted by Saham Pilihan at 08.26

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