Indo Premier TINS – Downgrade to HOLD (TP Rp 1.165), Cut earning 2009 by 47%

FY08 Sales closed to our estimates, while net income below our estimate

TINS booked FY08 net sales of Rp 9.05 tr reached 98.8% of our estimates and 3.75% above the consensus, making the gross profit of Rp 2.718 tr, 99.4% of our estimate. Falling tin price in fourth quarter had pressured selling price where the ASP in Q408 scored at US$ 14,725/Mt. Unfortunately it was not accompanied with proportionate decrease of production cost. Thus the company’s Q408 net sales decreased by 20% QoQ down to Rp 2.158 tr and gross profit declined further by 82% QoQ down to Rp 122 bn. Capex in 2008 was focused to downstream business line - needs external financing

TINS now is concentrating its strategic business line towards downstream product such as tin chemical and tin solder
Tin Production in 2009 targeted at range 42,000 – 45,000 tons

Company has targeted its refined tin production at range 42,000 – 45,000 tons in 2009, or decrease by 10-15% compared to 2008. Continuous negative sentiment in tin industry and falling tin import from Japan and Singapore, has prompted us to revise down our assumption on 2009 production and sales volume, becoming 42,000 and 40,000 or 6,7% and 9,6% lower than previous estimates.

Tin Industry: A Glance
Tin production globally predicted cut by 10%
CRU predicts that total tin consumption globally in 2008 reached 333,000 Mt or decreased by 26.4% YoY from 2007 of 356,000 Mt. Per February 2009, CRU has predicted that total tin production in 2009 would continue to decrease by 10% in line with lower consumption or demand. In Indonesia, total tin production is predicted at 105,000 Mt. Tin inventory in LME surged up to 10,775Mt, indicating demand plummet

Japan Tin import plummet
Japan’s imports of refined tin plummet and dropped significantly in the first two months of 2009 due to global recession coupled with strength in yen that affected badly to the country’s demand. Cumulatively, total tin imports fell 49% YoY to 3,122 tons and plummet 60% MoM in February to 1,210 tons.

China still import tin
Per February 2009m China has imported tin 1,095 tons with majority supplier from Indonesia (50%) and Bolivia (20%). Cumulatively, total tin imports per February reached 1,938 tons or decreased 24% YoY

Valuation and Projection
Based on decreasing sales projection and with WACC of 19% (Rf 12.5%, beta 1.2x, risk premium of 6.5%, terminal growth of 5% and target debt ratio of 10%) our DCF model derived TP at Rp 1,165 or decrease 12.5% from previous TP at Rp 1,331 implying PER 2009F at 11x. Historically, TINS PER has deeply discount at 4-5x versus consensus estimate PER 2009F of 8.7x with EPS 2009F of Rp 160 (look exhibit Rp 2 and 3). Currently our valuation show us that TINS PER09F is traded at 11,5x with closed price at Rp 1,210

Nevertheless, TINS prospects seem hampered by fall in tin demand that in short and médium period unlikely to recover. Thus we downgrade our rating for TINS from BUY to Hold with TP Rp 1,165.