OSK Timah: 1H10: Expect a stronger 2H10 on higher sales volume. BUY

Results
• Strong net profit in 1H10, but below expectation. Timah (TINS) reported net profit of Rp322.3b in 1H10 (1H09: Rp42.8b), driven by: a) higher tin ASP (+45% yoy) offset by lower refined tin sales volume (- 18% yoy), b) lower forex loss (-76% yoy), and c) lower interest expenses (-73.3% yoy). Results were below expectation as 1H10 net
profit accounted for 30% of full-year consensus and 39% of ours.

• Margin improvement on strong tin price. Owing to strong tin price, which resulted in strong margin of US$2,222/tonne in 1H10 (1H09: US$645/tonne), gross and operating margin jumped from 10.6% and 5.0% in 1H09 to 18.4% and 11.1% in 1H10 respectively. However, 2Q10 margin/tonne declined from 19.2% in 1Q10 to 8.2% in 2Q10 due
to higher cost of tin-ore from small miners on TINS’ onshore mining activities.

Stock Impact
• Higher expected sales volume in 2H10. TINS registered total refined tin production of 19,501 tonnes in 1H10, which accounted for 46% of 2010 total contracts. As 2H production is historically higher than in 1H, we expect the company to fulfil the balance of 42,000-43,000 tonnes of refined tin contracts delivery to customers in 2H10