Saturday, June 25, 2011

United Tractors Tbk.

by DBS Securities

• Komatsu sales in May fell by 20% mom on supply disruptions.
• Demand for heavy equipment remains solid driven by strong coal price outlook and production growth.
• Pama was inline; expect higher output to continue due to better weather conditions
• Maintain Buy, TP Rp25,700.

Lower Komatsu sales in May was widely anticipated. Komatsu sales in May came in at 617 units (+14% yoy) fell 20% mom from 767 units in April but still above our monthly forecast of 557 units. The weak result was widely anticipated due to supply disruptions arising from Japan disaster before the situation normalizes in August. Sales to mining sector contributed 65% of total sales. Despite of the short-term pressure, we believe that demand for heavy equipment is fundamentally strong on the back of strong coal price outlook and 10% p.a. coal production growth. This year, we estimate volume to grow by 25% to 6,680 units, backed by strong demand from mining sector. 5M11 sales already accounted for 54% of our FY11 forecast.

Pama grew strongly. Coal production at Pama in May was 7.0m tons in line with our monthly forecast of 7.1m tons while overburden grew to 67.4m bcm above our monthly estimates of 59.7m bcm. This is largely inline with our estimates as we expect coal output to accelerate starting from 2Q due to better weather conditions. YTD sales reached 32.4m tons and 295.1m bcm, which accounted for 38-40% of our FY11 forecasts of 86m tons and 748m bcm respectively. We maintain our forecast for now as we expect seasonally stronger output in 2H.

Coal mining unit is improving. Coal sales in May dropped by 10% mom to 373k tons due to slower sales from both DEJ (-10% mom) and TTA (-12% mom) but still above our monthly average of 333k tons. YTD sales reached 2.6m tons or 65% of our FY11F of 4m tons.

Maintain Buy, TP Rp25,700/share. We reiterate our Buy call for UT with DCF-based target price of Rp25,700/share (WACC 12%, terminal growth 3%). Our target price has been adjusted for recent rights issue. The stock is trading at attractive 15x FY11F PE against 22% CAGR in earnings over FY10-12F. Despite short-term headwinds from the delay in its Komatsu supply, UT’s long-term growth story remains intact driven by strong coal mining activities in Indonesia . UT is the prime beneficiary of rising coal mining activities in Indonesia as UT is the market leader in both construction machinery (46% market share) and mining contracting (44%) in Indonesia

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