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Tuesday, September 6, 2011

United Tractors - Investment Thesis

by Kresna Securities

We maintain BUY recommendation on UNTR with Rp27,900 of TP. Komatsu sales, overburden removal, coal extraction and coal sales were all on track with our expectations, arriving at 67.5%, 59.9%, 56.4% and 60.9%, respectively, of our FY11E. Meanwhile, positive news came from Komatsu Japan as it plans to increase allocation by 6.7% to 8,000 units, yielding an additional 3.3% to our FY11 EPS estimate (should we incorporate the scenario in our model). However, we prefer to maintain our current estimates at the moment as the deviation is still within our range of tolerance. Post recent market crash, UNTR is now trading at an attractive FY12 P/E of 13.4x, especially considering company’s GCG and consistency in delivering high earnings growth.

Key Catalysts

Monthly Komatsu sales grew 55.6%YoY to 728 units. The same as with preceding periods, mining and agro equipment contributed the most to total sales: 82.7%. Meanwhile, YTD figure has reached 5,061 units, marking 63.3% of company’s FY11 target. Noteworthy is that market share evidently dropped 1% to 50% versus a month earlier, though it still much higher than the 46% figure for 7M10.

More machinery allocation in the pipeline. Management informed us that Komatsu Japan is reviewing plan to increase allocation to Indonesia up to 8,000 units for this year (previously only 7,500 units).

Mining contractor: Higher volume continued. Pama once again booked highest record of overburden and coal extraction volume on a monthly basis, after it had managed to break the record a month earlier. Friendly weather and smooth equipment fleet supply from Japan should be the main drivers for 8.5% and 6.7% MoM growth in overburden and coal extraction volume, to 76.7m bcm and 8.0mt, respectively. The monthly strip ratio also continued increasing, to 9.6x versus 9.4x in Jun-11.

Coal sales jumped by 70.6%YoY. The high volume differences were attributable to 35.1% higher volume from DEJ and 633K tons contribution from TTA, starting in Jan-11. 7M11 DEJ and TTA production have arrived at 77% and 42.2%, respectively, of the FY11 company target.

BUY

Maintain our estimate and BUY rating. The YTD Komatsu Sales, coal overburden, coal extraction and coal sales have arrived at 67.5%, 59.9%, 56.4% and 60.9%, respectively, of our FY11 expectations. Meanwhile, upgrading our FY11 Komatsu sales target to 8,000 units (following Komatsu Japan’s plan to increase its allocation to Indonesia) only leads to a 3.3% upward revision to our FY11 operating and net profit estimates. Having said that, we prefer to maintain our current earning estimates at the moment. Still a BUY with TP of Rp27,900.

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