Danareksa Equity Snapshot – TINS, 29 November 2018

By Stefanus Darmagiri |

Timah (TINS) reported net profits of IDR85bn in 3Q18 (-26.1% qoq and -43.0% yoy). Cumulatively, net profits reached IDR256bn (+15.0% yoy) in 9M18. The net profit was below our expectations (on lower-than-expected refined tin sales volume and margins) and the consensus estimates. As we cut our earnings forecast by 30 – 37% for 2018 and 2019, we lower our target price to IDR900 (based on DCF valuation with WACC of 12.7%). Maintain BUY.

3Q18: lower ASP and higher costs dragged down net profits. Net profits declined by 26.1% qoq to IDR85bn in 3Q18 mainly due to: a) lower ASP (-7.3% qoq), b) higher operating expenses (+15.9% qoq) mainly from rising selling expenses, c) the absence of other income from gains from revaluation of investment properties of IDR49bn booked in 2Q18 and d) a higher tax rate of 40.5% in 3Q18 (2Q18: 25.4%). The company’s ability to improve revenues by 2.7% qoq thanks to 7.1% qoq higher refined tin sales volume helped to prevent a further decline in net profits.

9M18: Weak results. The company booked 15% yoy lower net profits of IDR256bn in 9M18 mainly owing to: a) lower refined tin sales volume (-6.5% yoy), b) higher costs, mainly from higher operating expenses (+20.9% yoy), and c) rising interest expenses (+69.1% yoy). However, solid refined tin ASP and weakening of the rupiah vs. the USD helped the company to post 2.7% yoy higher revenues despite lower refined tin sales volume. With higher costs, the company booked lower gross and operating margins of 15.9% and 5.9% in 9M18 vs. 17.4% and 8.9% in 9M17, respectively.

Moderating production growth in 2018.  After the company indicated strong growth in refined tin production of around 27.4% yoy to 30,249 tonnes in 2017, the management targets more moderate growth of 7.8% yoy to 32,600 tonnes in 2018, a decline from the initial target of 35,000 tonnes. Given that escalating trade wars might curtail economic growth in China, the world’s largest consumer of tin, we apply a more conservative refined tin production growth estimate of only 6.3% yoy to 34,000 tonnes in 2019.

Maintain BUY. Given the weak results and our lower refined tin price assumption, we cut our net profit forecasts by 30 – 37% for 2018 – 2019. As such, we also cut our target price to IDR900 (based on DCF valuation with WACC of 12.7%). We maintain our BUY call, however, as the share price correction provides upside of 45.2% to our target price. The main downside risks are escalating trade wars which might dampen economic growth in China and negatively impact the tin price. Our target price implies 15.5x 2019F PE.

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