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Sunday, May 8, 2011

New Optimist Outlook - United Tractor Tbk

by IndoPremier Securities

UNTR reported significant increase in sales to reach Rp 12.6 tn (45.1% YoY and 33.9% QoQ increase). Komatsu sales break new high quarter record of 2.207 units in 1Q11 and let Management to set new target of Komatsu sales at 7.000 units in FY11. However, gross margin drop 100bps to 17.6% due to strengthening Rupiah against US Dollar and lower portion of high margin machineries sales, particularly Parts and after sales services. We maintain Komatsu sales target of 5.800 since we view that the possibility of supply shortage in the second and third quarters of 2011 remains. BUY recommendation for UNTR with TP of Rp 26.000 per share (slightly increase from previous of Rp 25.800).

Komatsu Sales: Higher than expected

Komatsu sales break new high quarter record of 2.207 units (81.1% YoY increase) and led to market share increase to 54% from average 47-48%. About 1.516 units (a portion of 68.7%) Komatsu sales are distributed to mining business, which also scored to highest growth of 117.5% YoY and 84.9% YoY. Strong demand due to coal price hike was the driver of Komatsu robust sales. we also view the growth is impacted by acceleration purchasing by coal producer in order to mitigate supply shortage in the next two quarters, given Komatsu manufacture plants in Japan has not yet fully recovered, and even worse to Hitachi manufacture plants. Hence we still maintain our Komatsu sales target of 5.800 units, while continuing to see optimist outlook on supply side.

Pama, DEJ and TTA

Pama recorded modest revenue growth of 12.3% YoY to reach Rp 4.7 tn thanks to coal price hike, while on QoQ basis the growth was only 2.8% QoQ due to seasonal low operating activities in first quarter. Pama has delivered 167.5 mn bcm OB (8.8% YoY, -2.2% QoQ) and 19.2 mn tons coal extraction (3.2% YoY, -8.1 QoQ). As well as DEJ coal production which seasonal drop 5.6% QoQ to reach 731k tons. TTA started this quarter with 271k tons coal production, lower 11.1% QoQ. Overall, we still maintain our forecast on Pama of 716 mn bcm OB and 88 m tons coal extraction in FY11, while we upgrade coal production volume from 3.7 mn tons to 4.5 mn tons in FY11 given additional production from TTA mine.

Low Margin Results

Rupiah Strengthening marked negative impact to UNTR gross profit margin, particularly to Pama (mining contracting business). 1Q11 Pama Gross profit margin was 12.9%, drop 450bps from 17.4% in 1Q10 given approximately 35-40% Pama operational costs are denominated in Rupiah, while entirely revenues are denominated in US Dollar. This formula will let revenues to get lower and cost to go higher during Rupiah strengthening. In Construction Machinery business (Komatsu), low gross profit margin was a result of lower portion of high margin construction machinery sales, particularly parts and after sales service that provide 25-30% gross margin. In 1Q10, Parts and after sales services was Rp 1.1 tn, or took 16.5% of total machinery sales vs 28.8% in 1Q10.

Maintain Recommendation

We set our TP to Rp 26,000 per share which reflect 22.3x PER and 11.1x EV/EBITDA in 2011. We believe UNTR’s FI11 performance will benefit from commodity price hike, but slightly decrease in net margin due to Rupiah strengthening. Hence, we estimate UNTR to deliver 13.3% YoY and lower net margin of 9.9% in 2011.


2009
2010
2011F
2012F
2013F
Year End 31 Dec





Sales
29,241.9
37,323.9
42,296.7
50,354.2
58,241.4
EBITDA
7,551.9
8,161.7
9,481.2
11,687.7
13,698.3
Net Income
3,817.5
3,872.9
4,191.0
5,447.2
6,496.3
EPS
1,147.5
1,164.1
1,259.7
1,637.3
1,952.7
PER (x)
13.5
20.1
18.3
14.0
11.8
PBV (x)
3.7
4.8
4.1
3.5
2.9
EV/EBITDA (X)
7.0
10.0
8.2
6.6
5.4
Dividend Yield
2.3%
2.1%
2.3%
2.5%
3.2%
Source: company, IPS calculation

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