Thursday, April 14, 2011

United Tractor Tbk (UNTR)

by Kim Eng Securities

�� We reiterate our BUY recommendation for United Tractors at target price Rp26,383, reflecting our adjustment based on heavy equipment sales after the earthquake in Japan.

Our View

�� We reduced our estimate for Komatsu sales in FY11 by 2% to 6,090 units (+13% y/y), to reflect possible delays in the deliveries of heavy equipment from Japan. However, we increase our estimate for FY12 by 4% to 6832 (+12%) units, based on our bullish view of the coal sector. We believe the earthquake in Japan has a relatively minor impact on United Tractor’s operations. About half of the units sold, typically small‐medium units, are locally made, while the remaining is imported from other countries like Japan, China and Thailand.

�� Its newly‐operated coal mine, Tuah Turangga Agung, is expected to produce 1.5m tons of coal in FY11. Combined with the existing Dasa Ekajasa Tama (DEJ), output in FY11 will be 4m tons, with a further increase to 5m tons in FY12. The output is highly exposed to the rising coal price, with roughly a third of the volume from DEJ linked to the index and the remaining to the spot market.

Action & Recommendation

�� We reiterate our BUY recommendation for United Tractors, albeit at a slightly lower target price of Rp26,383 (yet to factor‐in the rights issue plan). Our target price implies that the stock is trading at 15.1x FY12 PER (9% premium to the sector average), with an upside of 23% upside, which reflects its high earnings quality. We reckon that its earnings have grown at a CAGR of 21.3% since 2000, dropping only in 2006.