Indonesian Mining Companies in Focus: Tin Miner Timah
State-controlled, yet listed on the Indonesia Stock Exchange, tin producer and exporter Timah is expected to experience improving corporate earnings in 2017 supported by recovering production volumes and the rising trend of global commodity prices. Danareksa Sekuritas expects the price of refined tin to rise 12.4 percent to USD $20,000 per ton this year, followed by a further rise to USD $21,000 per ton in 2018. Meanwhile, Danareksa Sekuritas also expects Timah's production volume to rise around 25 percent (y/y) to 28,000 tons this year (slightly below the company's target of 30,000 tons).
Expectation of stagnating tin production in Myanmar is estimated to boost global tin prices and therefore Timah should see its gross margin improving to 16.5 percent in 2017, from 15.2 percent in the preceding year. In combination with the expected rising production volume of Timah it should lead to rising net profit for the world's third-largest tin producer.
The rising production volume of Timah is supported by the arrival of the company's additional tin mining ships (rising from 18 units to 22 units) and new (more efficient) mining methods.
Another factor that supports rising corporate earnings of Timah on the long term is the company's diversification into Indonesia's property sector. Danareksa Sekuritas says the expansion into the property sector means that Timah can make use of assets that, so far, have remained unused (or unproductive) earlier. Through its subsidiary Timah Karya Persada Property the company owns a 176-hectares plot of land in Bekasi, part of which will be used for property development. However, considering construction will start this year, this business segment will not contribute to Timah's earnings in 2017.
Danareksa Sekuritas advises investors to purchase shares of Timah and recently rose its target price for Timah shares to IDR 1,250 a piece. However, on Friday (13/01) shares of Timah plunged 2.99 percent to IDR 1,135 a piece as the mining sector received a blow due to the government's decision to revise certain rules. Still, over the past 12 months, shares of Timah surged a whopping 124.75 percent.
Stock Quote Timah - TINS:
Earlier this month, Timah Corporate Secretary Agung Nugroho said the company eyes to raise IDR 500 billion (approx. USD $38 million) from a bond issuance. Proceeds will be used to finance (part of) Timah's capital expenditure (capex) for further business expansion. Timah earmarked IDR 1.5 trillion in capex for investment in production equipment in 2017. Timah is currently upgrading its metallurgic unit in Mentok (Bangka) in order to raise efficiency of the tin melting process.
Up to the third quarter of 2016, Timah produced 20,870 metric tons of refined tin metal, falling 23 percent (y/y) from production in the same period one year earlier. Meanwhile, it sold 18,600 metric tons of the metal in the January-September 2016 period, down 18 percent (y/y).
The Indonesian government plans to make a holding company for state-owned firms in the mining sector. Timah is expected to be one of the companies to enter this holding company. Also in other sectors the government wants to create holdings as it would improve capacity and the efficiency of Indonesian state-owned companies. If Timah indeed enters this holding, then it will be disallowed to have business activities outside the mining sector.
Future Projection Timah's Financial Highlights:
| 2014 | 2015 | 2016F | 2017F | 2018F | |
| Net Revenue | 7,518.0 | 6,874.0 | 6.090.0 | 7,828.0 | 7,989.0 |
| Net Profit | 673.0 | 102.0 | 177.0 | 371.0 | 384.0 |
| EBITDA | 1,211.0 | 553.0 | 765.0 | 1,062.0 | 1,182.0 |
| P/E Ratio (x) | 12.2 | 81.0 | 46.5 | 22.2 | 21.4 |
| P/BV (x) | 1.8 | 1.2 | 1.5 | 1.4 | 1.3 |
in billion IDR, unless otherwise stated
Source: Danareksa Sekuritas (11/01/2017)
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