Indopremier TINS (BUY TP Rp 2555)

9M09 bottom-line results below our expectations
TINS’ 9M09 financial results were below our expectations: while revenues achieved 74% of our 2009 estimate, net profit realization reached only 40%. We believe that our net profit estimate came in higher because of the higher ASP and USD/IDR that we used (year end estimate of IDR9,852/USD compared to IDR9,681/USD realized at the end of 3Q09), resulting in higher revenues in terms of IDR and lower forex translation losses. Profit figures fell heavily in YoY terms as LME tin prices had dropped drastically compared to the year before. However, they have shown major improvements QoQ as prices have recovered and margins have widened. The recent shift to higher offshore production (49.5% of total production in 9M09 compared to 28% in 9M08) resulted in better profitability as it has a more fixed cost, so that the inventories sold has better margins.

Improving operational performance
Production grew 141% QoQ to 15,466Mton as offshore production increased significantly by 30% QoQ to 9,101 Mton. Small-scale miners returned selling tin concentrate to TINS as tin prices improved and police crackdowns on illegal mining take root. Consequently, the proportion of offshore production fell to 41% in 3Q09 despite a 41% growth QoQ in offshore production volume. 9M09 sales volume came within expectations with 76% of our 2009E, and even though it has fallen a slight -6% QoQ, future sales are expected to remain strong with recovering global consumption. ASP rose 15% QoQ but the YTD figure was still lower than we would like it to be at 93% of our 2009E.
FY09 earnings downgraded

While maintaining our long term forecasts, we reduced our ASP estimation for FY09 from US$14,000/Mton to US$13,550/Mton as 9M09 ASP is lower than expected. We also reduce our IDR/USD exchange rate for year end to IDR9,600/USD from IDR9,852/USD, expecting forex loss of Rp94.9bn as a result. Overall, our 2009E net profit fell 86% from our previous estimate to Rp229.3bn.

Valuation
Even with the downgrade in FY09 earnings, we maintain our recommendation of BUY with an unchanged TP of RP2,555 as our DCF valuation has been rolled over to FY10 previously. Our TP offers 31% potential upside and implies 11.6x FY10 PER and 6.83x FY10 EV/EBITDA.