Monday, March 7, 2011

Pelat Timah Nusantara Tbk (NIKL)

by OSK Nusadana Securities Indonesia

Latinusa at a glance. Pelat Timah Nusantara, also known as Latinusa (NIKL), was established in 1982 as the country’s sole producer of high quality tinplates. The tinplate it makes is used as raw material in can packaging for milk, food, paint, general and other products, which are mostly sold in the domestic market. NIKL has been able to maintain its market share at above the 50% level since 2006, dominating 51.4% of the domestic market, with the remaining portion made up of imported tinplate. NIKL’s raw material components consist of Tin Mill Black Plates (TMBP; 90-91%) and tin (8-10%).

Securing raw materials. NIKL has a strategic partnership with Nippon Steel (35% ownership), which enables it to obtain high quality TMBP, a raw material that is essentially needed to keep canned food well preserved. It is worth noting that F&B (65%) comprises the largest market segment. This puts NIKL in a good position to secure its raw material requirement. This aside, the company believes its Japanese partner contributing in terms of synergies and best practices.

Restoring old equipment. With the IDR158bn proceeds raised from its IPO in 2009, NIKL is restoring its old equipment in Cilegon, West Java, which is anticipated to be completed by the end of this year. By doing so, NIKL would be able to produce tinplates of better quality, and in turn enhance efficiency. In 4 to 5 years, the company aims to move towards producing thinner gauges and tinplates in its efforts to minimize the threat posed by substitute products such as plastic, aluminium and cartons. It is aware that low import tariffs pose a risk to its business as these give rise to stiff competition in the form of price pressure from imported tinplate producers such as China (18% market share) and South Korea (10%).

Capacity expansion caters to growth. Given NIKL’s average utilization of about 91%-92%, NIKL plans to ramp up its production capacity from the current 130k tons per year to 160k tons in 2012 to cater to a larger market share going forward. The company believes that the demand for tinplates would still be strong, spurred by Indonesia’s GDP per capita growth of 13% y-o-y in 2010.

Proxy to the consumer sector. As the consumer sector PE is at a high 20.4x 2011, NIKL would be a stock worthy of attention as it is trading at a steep discount of 60.3% to its implied 2011 PE of 8.1x, assuming a 20% growth in 2011 net profit. We feel that NIKL would be a proxy to the consumer sector given its huge exposure to the food and beverage industry.

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