Hazy profitability Even though Timah's 1Q09 top-line was just slightly below our estimates, bottom-line was far below ours and consensus targets. Shrinking gross margin due to high inventory costs was the main problem. 1Q09 profit only reflected 9.7% and 2.3% of our and FY09F consensus estimates, respectively. Net profit of Rp14.4bn declined by 97.0%yoy, but improved slightly from the 4Q08 loss of Rp149.3bn. We expect gross margi improvement in the remaining quarters of 2009 along with raw material cost stabilization. We maintain our Sell call with TP of Rp1,100/share.
Worsening top-line despite of better bottom-line on qoq basis. With 1Q09 sales volume increasing by 8.2%qoq (-11.1%yoy) and ASP declining by 19.1%qoq (-17.2%yoy), the company posted Rp1.6tn (-12.4%qoq, -26.4%yoy) in revenue. This resulted to 1Q09 net profit of Rp14.4bn (-97.0%yoy), slightly better than 4Q08 net loss of Rp149.0bn. This was due to COGS/t decline which exceeded ASP decline. Cash cycle concerns? Our observation on the company's receivable turnover revealed deterioration with 1Q09 receivable turnover ratio to 2.7x while average ratio for the last 4 years was 3.4x. Term of payment extension was due to difficulties faced by its customers. At the other side, payable turnover was also getting higher from 5.0x (4 years average) to 6.8x. Combining these changes in the two ratios, it means that the company's cash cycle period was getting longer by 1.5 months, a signal of lower working capital management. Gross margin is expected to slightly improve in the remainder of 2009. The company's gross margin declined significantly from 47.8% (1Q08) to 7.9% (1Q09), but slightly improved compared with 5.6% in 4Q08. This was because COGS/t declined by 19.2%qoq while ASP only fell by 17.2%qoq. COGS/t improved on qoq basis mainly due to labor expense efficiency. We believe gross margin will slightly improve for the rest of 2009 as the company's weighted average inventory costing will drag down inventory costs (tin ore cost/t has been stable qoq). Valuation. We put a target price of Rp1,100/share by combining book value multiple of 1.8x (metal industry average) and DCF (18.5% WACC, 12.0% risk-free rate). High WACC is due to assumption of no debt financing in the long term. Our TP is 33.3% below the current price, thus we maintain our Sell call. tarik maannnnng!! hehehe
