AAA COMPANY UPDATE Site visit notes from Bangka – tin mining

􀂖 Unfavourable operational cost, heavy diesel fuel consumption
􀂖 Shifting to offshore production, target -15 cutter suction dredge by end 2010
􀂖 Indonesia tin supplies would fall as controls on small scale mining tighten
􀂖 Positive view confirmation from new mining law
􀂖 2010F valuation not cheap anymore, but 2011F’s still look favourable.

Earnings and Valuation
With additional 5 CSDs which cost Rp 20 – 25 Bn each, total capex this year for those additional CSDs would be estimated to cost around Rp 100 – 125 bn. While the first BWD would start to operate in mid 2011 would cost around Rp 200 bn. As of 9M09 results, PT Timah generates sales of Rp 5.5 tr, Ebitda Rp 497 bn, and net profit Rp 312 bn. Global crisis in 2009 has cut the operating margin significantly from 23% in 2008 dropped to only 5%. We see that 2009 is an extraordinary year for PT Timah, so we are not using 2009 base year anymore due to its irrelevant valuation.

Based on 2010F and 2011F forward valuation measures, TINS is already traded at 16.2x – 11.8x P/E 2010F-2011F and 8.4x – 6.4 EV/EBITDA 2010-2011F. It looks that TINS based on 2010F valuation wise is already pricing in but still looks favourable based on 2011F valuation by expecting positive outlook on LME tin price onwards. We have recommended BUY with TP at Rp 2,400 implying 12.6 P/E 2011F. But currently TINS has traded near to our TP and has less potential upside. We are still reviewing our new TP and recommendation while waiting for the full year audited 2009 result by end of this month while expecting better performance result on QoQ basis due to spiked on LME price in late 2009.