Sinarmas TINS Re-shaping The Attractiveness Of Tin’s Industry

Tin’s price should rise as demands outweigh supplies.
PT. Timah, as the second biggest producer and the largest exporter of Tin, is able to influence supply tremendously in international market due to the fact that China, as the leading producer of Tin, has becoming a net importer. I.e. supplies will be less than demands as production for this nonsubstitutable raw material for electronic goods is preserved by PT. Timah at 50,000 Mt/annum. Whereas the demand for
electronic goods such as Television, Computer, Heater and Etc have grown rapidly as they become the primary needs of society, and thereby Tin’s price should rise consequently.

The cost/Mt of off-shore mining is cheaper.
Illegal miners account around 80% of total Tin excavated from PT. Timah’s mine concession. These miners then sell the Tin ore back to the company at a price that is set at 70% of last month LME’s price. As a result, cost/Mt of onshore mining is rising from around USD 6,000/Mt to USD 11,000/Mt, which is higher than the cost/Mt of off-shore mining that is leveled at around USD 10,000/Mt. Even under the new mining law, the management team expects that the government of Indonesia can only rectify this matter entirely by year 2013. Until then, the company plans to extend
the proportion of offshore production to 60% by next year.

Capitalizing on more profitable downstream industry.
Besides selling the traditional form of Tin, TINS also enhances value added by promoting sales for its newly production of Tin solder, and developing its Tin chemical plant that is scheduled to begin production within the next year. These
highly demanded Customized Products aim to generate sales from solder, plastic and chemical industries in order to stabilize revenue growth and to dampen price volatility.

Important clarification on resources and reserves.
Tin’s resources in Indonesia alone amount to around 1 million Mt, which is large enough for 20 years of consumption if we simply divide it by production ceiling of 50K Mt/annum. Furthermore, PT.Timah will constantly perform exploration activities by going as deeper as 70 meter below the sea using its modified Bucket Wheel Dredge, and it may also go as far as Australia, Myanmar and Vietnam, just to locate new
untapped resources and reserves.

Assuming WACC of 13%, terminal growth rate of 5%, and FX @ IDR 8,800/USD, our DCF model derives a target price of IDR 2,750, and therefore we recommend a BUY as there still 14.6% upside potential gain.