Wednesday, September 28, 2011

United Tractors on Q3-2011

by Kresna Securities

Investment Thesis

We maintain our BUY on UNTR with TP of Rp27,900. Operational result in August exhibited Komatsu sales, overburden, coal extraction and coal sales grew by 30.0%, 13.2%, 27.3% and 104.0% YoY. The year-to-date achievement was on track with our estimate, reaching 75%, 70%, 66% and 69%. For 2012, we maintain our Komatsu sales assumption of 9,375 units, higher than company’s target of 8,800 units, as we expect UNTR to be main beneficiary in respect to robust domestic coal production expectation in 2012.

Key Catalysts

Komatsu: Volume slightly eased. Komatsu sales units hit 589 units in August, indicating a bit cooling down compared to prior month (-19.1%). However, YoY monthly figures yet indicated a robust growth of 30%. Additionally, Ytd picture showed that Komatsu sales recorded 54.7% YoY growth, mostly driven by mining equipment machine. On top of that, market share stayed at 50%, yet the same with July.

Pama: Strong performance continued. After recording highest operational volume in July, Pama’s coal extraction and overburden result slightly slipped in August by 3.8% and 4.4% MoM to 7.7mt and 73.6bcm, respectively. Strip ratio was maintained high at 9.6x. Post May, operational result continued to show a progressing result, in line with better weather condition and smooth heavy equipment supply.

Coal sales jumped by 104%YoY. The August high volume differences were attributable to 74.7% higher volume from Prima Multi Mineral (formerly DEJ) and new 51K tons contribution from TTA. Meanwhile, 8M11 PMM and TTA production have arrived at 82.5% and 45.6%, respectively, of our FY11 target.

Management’s target for FY12. Quoted from the newspaper, management targets to record 10% growth on Komatsu sales to 8,800 units. Meanwhile, coal sales are expected to increase by up 75%YoY to 7.0mt.

Earnings Outlook

Maintained our FY11E assumptions... So far, Komatsu sales, overburden removal, coal extraction and coal sales have reached 75%, 70%, 66% and 69%, respectively, to our FY11 estimates. Noteworthy, we yet maintain FY11 Komatsu sales assumption of 7,500, lower than company’s expectation of 8,000 units, hence there is

a 3.3% upside risk to our FY11 net income target should we par our Komatsu sales estimate with company’s target.

So does with FY12… In respect to APBI’s upbeat national coal production forecast (to hit 380mt next year), Komatsu, as the heavy equipment market leader, should become the principal beneficiary, in our opinion. This led us to take a slightly more aggressive stance in predicting Komatsu sales forecast, to hit 9,375 units in 2012, a 6.5% higher than company’s target.

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