COMPANY UPDATE INDONESIA

September 3, 2010 Research Division

PT Timah Tbk
Too many “x” factors...
HOLD

1H10 net income below expectations
Last Price (Rp) Timah reported 1H10 net profit of Rp 322.2 (+653% yoy, +27% qoq), which is
2,425
below our expectations and consensus. It only accounts for 35% our FY10
Fair Value (Rp) 2,300 ( -5.2%)
estimates and 30% consensus. Revenue was up to Rp 3,749 bn (+6% yoy, +4%
qoq) mainly come from higher ASP of US$ 17,529/ton, which surged 45%
yoy. 1H10 refined tin production only slightly increased by 0.6% to 19,502
Stock Data
tons, which off shore production up 28% yoy in 1H10 to 9,085 tons Sn. But
Bloomberg TINS.IJ
sales volumes of 19,760 tons which only account 40% our full year target of
Issued Shrs. (m) 5,033
48-49k tons. Historically, 1H sales volumes contributed 45%-50% FY target.
Market Cap (Rp bn) 12,205
52 W High / Low Rp 2,825 / Rp 1,760
Unexpectedly weak 2Q10 results
Major Shareholders : On QoQ basis, we find peculiarly results. Amid stronger ASP of US$
Government 65%
17,959/ton, up 6% qoq, and higher off shore production of 6,959 tons vs
Public 35% 3,262 tons in land production, Timah reported lower margin due to higher
cost production. Management states that inland production cost increased
unexpectedly above 70% of LME price vs internal expectation of 60% when
Earnings Estimates LME tin price above US$ 15,000/ton (probably relates to anticipation of new
2010F 2011F mining law) and maintenance cost for old BLDs also surged significantly. As
Net Profit (Rp bn) a result, 2Q10 margin plummeted to only US$ 1,465/ton, down 55% qoq.
AAA Estimate 663 875
Consensus 1,063 1,293

Revisit model, revise down earnings forecasts
EPS (Rp)
Historically, Timah’s earnings oftenly below expectations and downward
revision to consensus earnings oftenly to occur. We revisit our cost structure
AAA EPS 132 174
conservatively since there are many “x” factors that oftenly unexpected
Consensus EPS 219 265
and unjustified. Tin solder is still on market penetration and unlikely to be
commercially sold this year. Timah finds is difficult to enter the market
because there are already established tin solder factories that vertically
300
TINS integrated with electronic producers. Positive catalyst comes from LME
JCI price, supported by lower LME stocks that have fallen 47%ytd. Based on our
200 new revised key assumptions (see figure 2), we cut FY10 and FY11 earnings
forecast by 28% and 25% to Rp 663 bn and Rp 875 bn, respectively.
100

Pricing In – Lower TP - Downgrade to HOLD
Based on our revisited model and lower WACC of 13.9% (from 14.3%
- previously due to lower Rf of 9%), we derive new TP of Rp 2,300 per share.
Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10
Our TP implies at 17.5x-13.2 P/EFY10F-11F and 8.1x-6.5x EV/EBITDA FY11F,
with potential downside of 5.2%. Timah is not cheap anymore based on our
new forecasts. We downgrade our BUY rating to HOLD. Key downside risks
are: 1.) tin price volatility, 2.)higher mining cost, and 3.)lower sales volume
FINANCIAL SUMMARY

Rp Bn 2008 2009 2010F 2011F 2012F

Herman Koeswanto (ext 218) 9,053.1 7,709.9 8,662.1 9,448.1 9,599.2
Sales
Herman.koeswanto@aaasecurities.com Operating Profit 2,070.2 688.5 1,152.1 1,439.3 1,538.7
PT. Andalan Artha Advisindo Sekuritas Net Profit 1,342.3 313.8 663.2 875.8 903.8
Artha Graha Building 26th Floor 266.7 62.0 131.8 174.0 179.6
EPS (Rp)
Jl. Jend. Sudirman Kav. 52 – 53
PER (x) 9.1 39.1 18.4 13.9 13.5
Jakarta 12190
PBV (x) 3.2 3.6 3.1 2.7 2.5
Ph : +62 21 515 2640
EV/EBITDA (X) 4.6 14.5 8.6 6.6 6.2
Fax : +62 21 515 2644
Dividend Yield 5% 1% 3% 4% 4%
Source : Company; AAA Securities

PT Andalan Artha Advisindo Sekuritas 1

COMPANY UPDATE INDONESIA
September 3, 2010 Research Division

Figure 1. Interim Results

Rp bn 1H10 1H09 %yoy 2Q10 2Q09 %yoy 1Q09 %qoq

Revenue 3,749.40 3,539.30 6% 1,914.00 1,951.80 -2% 1,835.40 4%
Gross profit 688.80 374.90 84% 319.00 249.70 28% 369.80 -14%
Operating profit 415.00 72.00 476% 167.00 53.30 213% 248.00 -33%
net profit 322.40 42.80 653% 180.60 28.40 536% 141.80 27%

gross margin 18% 11% 73% 17% 13% 30% 20% -17%
operating margin 11% 2% 444% 9% 3% 220% 14% -35%
net margin 9% 1% 611% 9% 1% 548% 8% 22%
Sales volume (tons) 19,760 24,110 -18% 9,990 13,096 -24% 9,770 2%
ASP (US$/ton) 17,529 12,087 45% 17,959 12,798 40% 16,970 6%
Productio cost (US$/ton) 14,118 10,199 38% 15,288 9,555 60% 12,823 19%
Margin per cost
(US$/ton) 2,406 645 273% 1,465 930 58% 3,262 -55%
source: company, AAA Securities

Figure 2. Key assumptions and Earnings forecasts changes

2010F 2011F 2012F
ASP (US$/Mt) 18,000 18,500 18,500
% change 5% 6% 6%
Refined Tin Sales Volume (tons) 48,000 49,000 49,000
% change -2% 0% 0%
Tin solder (tons) - 1,000 1,000
% change -100% -50% -50%
Cost production (US$/ton) 14,448 14,481 14,324
% change 12% 15% 16%
Net profit (Rp bn) 663.2 875.8 903.8
% change -28% -25% -26%
source: AAA Securities

Figure 3. Blended Valuation

Old TP New TP
DCF 2,575 1,933
P/E Multiple 3,261 2,436
EV/EBITDA Multiple 3,263 2,384
average 3,000 2,300
source: AAA Securities

PT Andalan Artha Advisindo Sekuritas 2

COMPANY UPDATE INDONESIA
September 3, 2010 Research Division

Figure 4. Quaterly performance Figure 5. Inland vs off shore production & Cost vs
margin per ton

20,000 100%
25,000 50%

20,000 40% 16,000 80%

15,000 30% 12,000 60%

10,000 20% 8,000 40%

5,000 10% 4,000 20%

- 0% - 0%

Q 207
Q 307
Q 407
Q 108
Q 208
Q 308
Q 408
Q 109
Q 209
Q 309
Q 409
Q 110
Q 210
Q 207
Q 307
Q 407
Q 108
Q 208
Q 308
Q 408
Q 109
Q 209
Q 309
Q 409
Q 110
Q 210

(5,000) -10% (4,000) -20%

In land Off shore Cost of production Margin per ton

ASP cash cost Operating margin

source: company, AAA Securities source: company, AAA Securities

Figure 6. Forward P/E Band Figure 7. Forward P/E pricing in, not cheap anymore

6,000 30.00

5,000 25.00

avg + 1 stdev
4,000 20.00
14x
3,000 12x average
15.00
10x
2,000 8x
10.00 avg - 1 stdev
6x
1,000
4x
5.00

-
1/13/2006

7/13/2006

1/13/2007

7/13/2007

1/13/2008

7/13/2008

1/13/2009

7/13/2009

1/13/2010

7/13/2010

1/13/2011

7/13/2011

-
1/13/2006
4/13/2006
7/13/2006
10/13/2006
1/13/2007
4/13/2007
7/13/2007
10/13/2007
1/13/2008
4/13/2008
7/13/2008
10/13/2008
1/13/2009
4/13/2009
7/13/2009
10/13/2009
1/13/2010
4/13/2010

source: company, AAA Securities source: company, AAA Securities

PT Andalan Artha Advisindo Sekuritas 3

COMPANY UPDATE INDONESIA
September 3, 2010 Research Division

Income statement
Year-end 31 Dec (Rp Bn) 2007 2008 2009 2010F 2011F 2012F
Sales 8,548.7 9,053.1 7,709.9 8,662.1 9,448.1 9,599.2
COGS (5,366.3) (6,334.5) (6,556.9) (6,982.2) (7,433.4) (7,475.9)
Gross profit 3,182.3 2,718.6 1,153.0 1,679.9 2,014.7 2,123.3
EBITDA 2,833.3 2,278.0 835.9 1,398.2 1,775.3 1,877.2
Operating expense (443.4) (648.4) (464.4) (527.7) (575.4) (584.6)
Operating profit 2,738.9 2,070.2 688.5 1,152.1 1,439.3 1,538.7
Pre-tax profit 2,660.2 2,108.9 549.2 1,069.6 1,400.7 1,473.7
Income tax - net (869.3) (766.6) (235.4) (406.4) (524.9) (569.9)
Minority interest (0.0) (0.0) - (0.0) (0.0) (0.0)
Net profit 1,790.9 1,342.3 313.8 663.2 875.8 903.8
EPS (Rp) 356 267 62 132 174 180

Balance sheet
Year-end 31 Dec (Rp Bn) 2007 2008 2009 2010F 2011F 2012F
Assets
Cash and equiv 1,735.3 461.4 569.0 774.2 996.8 1,299.8
Receivables 341.7 447.3 551.0 471.8 508.6 550.0
Inventories 1,730.1 3,173.5 1,909.2 2,094.7 2,230.0 2,242.8
Others 115.9 223.7 215.3 183.7 235.5 246.8
Total current assets 3,923.0 4,305.9 3,244.5 3,524.4 3,970.9 4,339.4
Net fixed assets 474.4 879.6 1,269.8 1,584.6 1,814.8 1,919.4
Other assets 635.4 599.5 341.4 327.9 344.6 352.4
Total assets 5,032.7 5,785.0 4,855.7 5,436.8 6,130.3 6,611.2

Liabilities and equities

Payables 211.7 416.6 367.4 373.2 434.2 419.5
ST. debt and curr. maturity - 365.7 364.3 346.5 377.9 384.0
Other current liabilities 1,138.5 858.6 371.4 423.8 463.4 469.2
LT. debt - - - - - -
Other long term liabilities 322.7 322.7 320.5 336.5 353.3 371.0
Total Liabilities 1,673.4 1,964.2 1,425.4 1,480.5 1,629.5 1,644.4
Minority Interest 0.3 0.3 0.3 0.3 0.4 0.6
Shareholders' equity 3,359.0 3,820.6 3,430.1 3,956.1 4,500.3 4,966.2
BVPS (Rp) 667 759 682 786 894 987

Valuation
Year-end 31 Dec 2007 2008 2009F 2010F 2011F 2012F
PER (x) 6.8 9.1 39.1 18.4 13.9 13.5
PBV (x) 3.6 3.2 3.6 3.1 2.7 2.5
EV/EBITDA (x) 4.2 4.6 14.5 8.6 6.6 6.2
EV/Sales (x) 1,407.2 1,156.9 1,570.7 1,385.5 1,246.6 1,207.1
Dividend yield (%) 7.3% 5.5% 1.3% 2.7% 3.6% 3.7%
source: company, AAA Securities

PT Andalan Artha Advisindo Sekuritas 4

COMPANY UPDATE INDONESIA
September 3, 2010 Research Division

Cashflow Statement Analysis

Year-end 31 Dec (Rp Bn) 2007 2008 2009 2010F 2011F 2012F
CFs from operation
Net profit 1,790.9 1,342.3 313.8 663.2 875.8 903.8
Depreciation/amortz. 147.1 170.5 244.2 291.1 336.2 374.9
Change in working capitals 554.0 (1,729.3) 640.8 (31.1) (139.0) (75.6)
CFs from operation 2,440.4 (249.7) 1,199.9 940.6 1,074.6 1,203.6

CFs from investments (147.1) (539.8) (376.4) (592.4) (583.1) (487.3)

CFs from financing activ. (737.4) (484.1) (716.4) (143.0) (268.9) (413.2)
Net inc/(dec) in cash 1,556.0 (1,273.6) 107.2 205.3 222.6 303.0
Cash at end period 1,734.2 460.6 567.7 773.0 995.6 1,298.6
DPS (Rp) 206.8 177.3 133.4 31.2 65.9 87.0

Key ratio analysis

Year-end 31 Dec 2007 2008 2009 2010F 2011F 2012F
Profitability
Gross Margin 37% 30% 15% 19% 21% 22%
EBIT margin 32% 23% 9% 13% 15% 16%
EBITDA margin 33% 25% 11% 16% 19% 20%
Pre-tax Margin 31% 23% 7% 12% 15% 15%
Net Income margin 21% 15% 4% 8% 9% 9%
ROE (%) 71% 37% 9% 18% 21% 19%
ROA (%) 42% 25% 6% 13% 15% 14%

Growth
Revenue 110% 6% -14.8% 12% 9% 2%
Operating Profit 618% -24% -66.7% 67% 25% 7%
EBITDA 428% -20% -63.3% 67% 27% 6%
Net Income 760% -25% -76.6% 111% 32% 3%

Solvability
Current ratio (x) 2.9 2.6 2.9 3.1 3.1 3.4
Quick ratio (x) 1.6 0.7 1.2 1.3 1.4 1.6
Debt to equity (x) 0.0 0.0 0.1 0.1 0.1 0.1
Interest cov. (x) 61.3 52.1 10.4 22.2 25.9 27.3
source: company, AAA Securities

PT Andalan Artha Advisindo Sekuritas 5

COMPANY UPDATE INDONESIA
September 3, 2010 Research Division

PT Andalan Artha Advisindo Sekuritas

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the accuracy or completeness of the information.All opinions and estimates included in this report constitute our judgement as of this date, without
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