Weighing the effect between rising tin price and the impact of La Nina,we view that Timah,on overall,will be adversely impacted:
In term of volume,La Nina will impede offshore mining so that sales volume target could be unachievable.Note that 1H10 sales volume only represented 41.2%of our FY10F.We doubt that the company could catch up the sales volume target in 2H10,considering weather in 2H10 is worse than 1H10.The impact will continue at least until 1H11F.
In term of cost,lower mining quantity means higher cost/unit due to big portion of fixed cost in offshore mining.At the same time,onshore sourcing also becomes very costly as suppliers speculate on further rise in tin ore price and ask for a substantial tin ore price increase to the company.
Considering the above factor,we are currently reviewing our forecasts of TINS.At this point we still have Neutral recommendation on TINS which is trading at PER10-11F of 17.0-11.2x.
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