Timah (TINS IJ)

Expect a positive 2Q24 outlook fueled by strong LME tin prices

 

  • The LME tin price is up +24% QTD to an average US$32.4k/t due to supply constraints from China, Myanmar, and Indonesia.
  • We expect TINS’ 2Q24 earnings to improve considerably, driven by higher ASP and continued robust cash cost management.
  • We resume our coverage with a Buy rating and an unchanged TP of Rp1,400. Key risks are lower tin prices, sales, and higher cash costs.

Supply constraints worsened in Apr24

The LME tin price has strengthened noticeably to an average of US$32,400/ton, up +24% QTD (vs. the 1Q avg. of US$26,250/ton) on the back of: 1) a comprehensive environmental inspection in Yunnan (China) where the resumption timeline is still unclear; 2) delayed tin export quotes from Indonesia; and 3) uncertainties on the resumption of Myanmar’s tin mine in Wa state, where its inventories are thought to be critically low post the production halt in Aug23. Consequently, overseas supply ran thin with China’s Jan-Apr24 imports down by -4.7% yoy to 70.6Mt with a sharp drop in Apr24 of -55% mom to 10.2Mt.

 

Better 2Q24 earnings on the horizon

We remain conservative on TINS’ production/sales volume as the Apr-May24 output may lag due to lower productivity due to longer holidays. Thus, we estimate TINS’ 2Q24 output at c.5kt (vs. 4.5kt in 1Q24). However, we expect revenue and earnings to improve with an expanding cash margin (at c.US$10-11k/t), hence overturning the weak 1Q24 revenue/ net profit (of only Rp2tn/30bn, reaching only 17%/3.5% of consensus FY24F).

 

On the road to sustainable cash cost recovery

The government’s initiatives to curb illegal mining practices on the island since 2022 have been noteworthy, with the deployment of task forces to deter unsanctioned activities at mining sites. Furthermore, the government's decision to delay the issuance of RKAB to only c.46kt in FY24 (vs. c.110kt in FY22-23) has disincentivized illegal miners, as it effectively cuts off their channels to sell ores. This has allowed TINS to record a lower cash cost of US$17,250/t (-18% yoy) in 1Q24, which we expect to be sustainable given persisting conditions.

 

Maintain Buy with a DCF-based TP of Rp1,400

We resume our coverage with an unchanged Buy rating and TP of Rp1,400 (factoring in the LT tin price of US$26k/ton, cash cost of US$20.5k/ton, and FY24 sales volume of 27kt). Key risks to our call include lower tin prices, lower production/sales volume, and higher cash costs.

 

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