Timah posted 1Q10 net income of Rp142bn (-0.7%qoq, +884.7%yoy), below ours and consensus FY10F estimates. The positive effect from higher ASP was mitigated by rupiah’s strengthening, lower contribution from cheaper offshore mining, and unfulfilled sales order of 2.5k tons (26.8% of 1Q10 sales). However, it was able to be more efficient in its operation with growing net cash balance and lower inventory. Incorporating higher ASP and rupiah’s exchange rate, and lower offshore mining contribution, we downgraded it to Neutral with TP of Rp2,800/share, 4.7% upside potential from current price.
1Q10 results were below ours and consensus estimates. Timah posted 1Q10 revenue of Rp1.8tn (-15.6%qoq, +15.6%yoy). This translated into net income of Rp142bn (-0.7%qoq, +884.7%yoy), or only represented some 17% and 13% of our and consensus’ FY10F estimates. Even though profitability margin was better, it was not as good as our expectations due to the rupiah’s sharp appreciation and low contribution from offshore mining as a result of the monsoon.
Hurt by the rupiah’s appreciation and monsoon. The company’s performance was hurt by the rupiah’s appreciation because (1) 99.0% of the company’s sales are export sales, (2) a large part of COGS are rupiah based-COGS, and (3) it has US$ net monetary asset equal to Rp978bn. In addition to that, the monsoon also caused low contribution from offshore mining of only 29.1%, vs our FY10F assumption of 50.0% (as happened in FY09). Less of! fshore mi ning means higher dependency on expensive onshore mining. In term of sales volume, 1Q10F declined by 23.6%qoq and 11.3%yoy due to unfulfilled sales order. It will be fulfilled and booked in 2Q10.
However, some positives are still left. With 2.5k tons of pending sales order, we estimate 2Q results will be better in term of volume. The company also showed better balance sheet with lower inventory (-14.7%qoq, -32.5%yoy), and higher net cash (+203.1%qoq, +99.7%yoy). This cash availability is important as it plans to spend big amount of capex in FY11F for new ships. Regarding exchange rate effect, our economist estimates average FY1! 0F rupiah ’s exchange rate at Rp9,112/US$, therefore, limited additional forex loss in the remaining quarters of 2010.
Downgrade to Neutral. Even though we increased our ASP assumption to US$17.5k/ton (+19.0%), we downgraded the company to Neutral recommendation with TP of Rp2,800/share due to strengthening rupiah assumption and because the company seems to be unable to meet our expectations of 50% offshore mining contribution (this is a very crucial assumption that significantly affects net margin). The stock is currently trading at PER10-11F of 16.2-10.7x
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