CLSA TINS

Timah – 2008 indication down 21% YoY
Timah indicated that its net profit in 2008 would reach Rp1.4tn down by 21% YoY.
The result was 35% below consensus estimate. Note that the fall in profit came despite a 30% increase in average tin price last year. Management was quoted stating that profit affected by a much higher input costs, particularly ore.
This, in our view, suggests the company’s vulnerability in managing its costs as Timah has relied to and been buying tin ore from the so-called unconventional miners (effectively illegal miners working on Timah concession area) and price for this ore is somewhat linked to the spot tin price. Timah, therefore, has not been able to enjoy the full upswing in margin during the commodity boom.
The management is targeting a flat YoY production and sales of around 46k tonnes in 2009. With tin price hovering around US$11,000/t as compared to last year average of US$18,500/t, we might see another year of declining profit.