CIMB Timah

Timah
Company update - Riposte of illegal mining - (TINS IJ / TINS.JK, UNDERPERFORM - Downgraded, Rp1,100 - Tgt. Rp770, Basic Resources)

Timah's FY08 net profit could be well below market and our expectations largely on high costs of inventory. We see double risks to its profitability in FY09-10 from: 1) softer demand (cutting sales volume expectations by 5-12.5% for FY09-10) and tin prices (cut by 9% for FY09-10 as illegal mining in Bangka-Belitung returns and China's net import position further narrows); and 2) high inventory costs (raising cost assumptions by 5% for FY09-10). We cut our FY08-10 EPS estimates by 11-66% and our DCF target price by 40% to Rp770 (WACC 17%, LTG 0%). More downside for the share price remains, in our view. Downgrade to Underperform from Neutral.