TINS - Boon from energy transition

• TINS’ 1H22 net profit skyrocketed 300.7% YoY to Rp1.1tn (-20.1% QoQ) 

• We expect revenue and net profit of Rp15.4tn and Rp1.6tn in 2022, respectively 

• We reiterate our “BUY” call with 21% upside potential on a 12-month view on growing demands from renewable industry and electronic devices 

Above estimate TINS' net profit jumped 300.7% YoY in 1H22 to Rp1.08tn (-20.1% QoQ), accounting for 68.1% of our FY forecast. The higher profit YoY was mainly propped up by strong revenue +27.4% YoY to Rp7.5tn in 1H22 (-29.8% QoQ) combined with finance costs that fell 47.6% YoY in 1H22 to Rp101.0bn. Meanwhile, cost of revenue grew 16.1% YoY in 1H22 (-33.3% QoQ), which is controllable in our view. This brought gross margin to expand from 19.2% in 1H21 to 26.4% in 1H22 (24.9% in 1Q22 to 28.6% in 2Q22). Furthermore, operating expenses also went up 10.0% YoY (+63.7% QoQ), largely due to higher G&A. Nevertheless, operating margin escalated from 10.7% in 1H21 to 19.1% in 1H22 (down from 20.2% in 1Q22 to 17.6% in 2Q22). EBITDA margin at 24.1% (17.6% in 2Q22), compared to 17.7% in 1H21. TINS' net gearing was improved in 1H22 at 17.1%. Boosted by strong ASP The company's revenue growth in 1H22 was mainly driven by higher ASP +47.6% YoY to USD41,110/MT. Meanwhile, sales of refined tin declined by 20.6% YoY (-31.8% QoQ). The lower sales volume in 1H22 was in line with sluggish production of refined tin in 1H22 -26.1% YoY (-17.3% QoQ), while production of tin ore contracted 13.6% YoY in 1H22 (+19.6% QoQ). On the other hand, contribution of other segments' revenue stood at 7.6% in 1H22, compared to 5.8% in 1H21 in which coal business made up 54.2% of other segments' revenue. Dragged by tightening monetary We expect TINS revenue and net profit growth of 6% YoY and c. 22 % YoY in 2022, respectively. We estimate tin price hikes to slow down in 2H22, impacted by aggressive FFR hikes that will accelerate recession. In addition, we also view that China's economic recovery will be slower-than-expected this year due to its covid-19 policies. Thus, we anticipate ASP to moderate at USD37,900 in 2022. While the government’s plan to restrict tin export will provide upside room on global price, we doubt such policies will be immediately finalized as domestic downstream is still lagging, since 90% of TINS’ sales comes from export market. Furthermore, TINS’ sales volume is expected to lower to 22,000 MT in line with soft production volume. With TSL ausmelt furnace due to be operational by November, management expects the purification smelter to be able to improve efficiency by 25-34%. Reiterate BUY on the back of growing renewable industry We maintain our BUY call with a price target of Rp1,700/share, implying 2022E EV/EBITDA of 4.8x. We are optimistic with TINS’ performance, helped by 1) ASP increase YoY, boosted by post-pandemic demand from EV, solar panel and electronic devices; 2) an initiation of smelter operation; 3) strong USD; 4) its position as one of the world’s largest tin producer and 5) improving leverage. Nevertheless, we note several downside risks to our recommendation namely 1) lower-thanexpected ASP due China’s slow recovery and fear over recession following FFR hikes; 2) sluggish production volume due to rampant illegal mining; and 3) change in government’s policies.