Indopremier PT Timah Tbk Rp 2,050 – BUY on Weakness

Nonrenewable and no substitution commodity like tin is a great inflation hedge instrument for long term investment with bright prospect. Tins export has bounced up by 60% MoM and 38% YoY. It’s a good signal for Overweight into portfolio allocation. Upgrade to BUY with TP Rp 3,125.

Industry Prospect – Stockpiling Not the answer, but It’s a good start to anticipate Boosted Demand TINS estimates that ASP for LME tin price this year would reach US$
14,000/Mt and estimates that tin price would stabilize in Q309. Tin price is expected to fluctuate and potential correction would occur in the next 2 – 3 months. The main trigger for price jump would come from stockpiling activity. Low supply in LME would drive traders or producers to begin stockpiling before the global tin demand recovers.

Indonesian Consortium still cuts production, Sustaining Tin Price Three out of seven smelters in the consortium – Prima Timah Utama, United Smelting and Duta Putra Bangka have stopped production due to rising cost. These also due to the shortage of tin ore that was attributed to water shortages faced by small scale onshore miners. However, Koba tin does not expect its production to fall below its target of 750 ton per month.

Indonesia Export Start to bounce back in May ITRI reports that provisional data from surveying companies employed by Indonesia's trade ministry released on Friday shows a strong rise in the volume of tin checked for export in May. The May export was 9,873 tonnes, up 38% compared to May 2008 and more than 60% higher MoM. April exports were depressed by the implementation of new rules requiring letters of credit against tin sales of over US$ one million. However, the cumulative tonnage of tin checked for export between January-May stood at 41,914 tonnes, up 2.3% from 40,960 tonnes in the same period last year.

Recommendation Ugraded to BUY on Weakness with TP Rp 3,125 Based on current market situation, we roll over our valuation by using 2010 as base. Based on our new assumptions and WACC 15.2% our DCF valuation model arrive new TP at Rp 3,125 per share offering 52.4% upside potential and implying PER09F at 19.4x and PER10F at 10.4x respectively. Currently TINS share price at Rp 2,050 traded at 12.7x PER09F and 6.8x PER10F. EV/EBITDA in 2010 at 4.8x would considerably low since fair value stand at range 7-8x. We upgrade our recommendation from HOLD previously to BUY on Weakness.