CLSA Timah (TINS IJ), the next rare earth?

Our diligent resource analyst Rania Rahmundita is having a look at Timah (TINS IJ), the world’s largest tin exporter.

Why TIN? Tin prices have shot up through the roof and has hit all time record high. It has been the pest-performing commodity within the metal complex this year, up 55% YTD. Due to its scarce supply and lower production; comparisons against rare earth have come in mind.

The four major producers – Indonesia, Congo, China and Peru (about 85% of total) are seeing lower productions. Indeed, the global reserves of tins has a mine life of only 16 years left! Not many substitutes either as lead is poisonous and gold, well, just too expensive.

Rania points out that TINS operating leverage is weaker than its peers, but this is perhaps priced in, as it is the cheapest, trading at 11.7x consensus earnings against average peer of 16x earnings. And with the high share price correlation with tin prices, TIN is an interesting play.

Key highlights from the report:
PT Timah is the world’s largest tin exporter and the largest producer in Indonesia, supplying 15% of global tin and ~30% of global seaborne tin.
Tin has been the best-performing within the base metal complex this year (+55% YTD). Arguably, against falling supply and depleting reserves, tin could also be considered scarce, with upside mirroring that of the rare earth complex.
While investors should be mindful of the company’s weaker operating leverage than peers, it is now still the cheapest, at slightly below its historical mean valuation of 13x forward P/E. Hence, in addition to tin price upside, there is also upside on valuations to its peak-cycle valuation of 16x P/E.
In the current world of scarcer tin, sky-rocketing tin prices, limited tin plays globally, and high share price correlation with tin prices; Timah is likely to continue to be one of the few key beneficiaries.