Thursday, September 8, 2011

United Tractors

by Lauthandana

The management has published its 1H2011 result and has recorded consolidated revenue of Rp 25.6 trillion (+41.7% YoY, +2.5% QoQ) and net profit of Rp 2.5 trillion (+34.5% YoY, -4.2% QoQ).

The total heavy equipment sales attained to 5,349 units (+54.9% YoY, -10.9% QoQ) during the same period. Its mining contracting subsidiary, PT Pamapersada Nusantara (Pama), delivered coal extraction of 40 million tons (+5.6% YoY, +6.7% QoQ) and OB removal of 366 bcm (+16.2% YoY, +18.3% QoQ), while total coal sales volume reached to 2.2 million tons (+72.2% YoY, +20.0% QoQ).


The 1H11 positive result was triggered by strong demand on commodity-based sector, mainly in mining activity. Construction machinery and mining contracting division have contributed by 51% and 38%, respectively, to the total revenue. Meanwhile, the remaining came from mining division which soared by 90.0% YoY to Rp 2.7 trillion.

Overall, 1H11 results came in line with our projection. Revenue and net profit figures have reached 59% and 53%, respectively, compared to our FY2011 forecast of Rp 43.8 trillion in revenue and Rp 4.8 trillion in net profit.

On the quarterly basis, we viewed that the decline in consolidated profitability’s and growth’s performance (especially in Construction machinery and Mining divisions) were reasonable and inline as expected, due to the strengthening rupiah, softening coal price and lower heavy-equipment's sales in April & May 2011 as well as decrease in revenue from sales services. We noted that Komatsu sales slipped by 2.8% MoM in April and 19.6% MoM in May which was caused by supply disruption from Japan after earthquake and tsunami disasters. Meanwhile, Komatsu sales has recovered and grew by 20% MoM in June reaching to 742 units since the supply of Komatsu from Japan has returned to normal and shown signs of fast recovery after the recent earthquake and tsunami disasters.

Meanwhile, Pama managed to record improving profitability in 2Q11 backed by higher selling price in OB removal (+2.4% QoQ, US$ 1.9/bcm in 2Q11 vs US$ 1.8/bcm in 1Q11) and coal extraction (+13.5% QoQ, US$ 12.1/ton in 2Q11 vs US$ 10.7/ton in 1Q11). The gross margin advanced by 156 bps from 13.5% in 1Q11 became 15.0% in 2Q11, whilst its EBITDA margin also surged by 202 bps (27.6% in 2Q11 vs 25.5% in 1Q11).

From the rights issue IV proceeds, UNTR has used Rp 2.6 trillion from its total cash proceeds of Rp 6 trillion, which was allocated for Green Field coal mines acquisition, coal infrastructure projects, mining contracting business expansion and Pama’s borrowing payment. The remaining of rights issue proceeds are still in accordance with the plans of cash proceeds, as mentioned in its prospectus.

Recommendation–Upgrading New Target Price to Rp 32,550/share

We believe that strong demand on mining activity buoyed by better weather condition and faster recovery of Komatsu’s supply will further improve UNTR performance in 2H11. Hence, we upgraded our 2011 Construction Machinery and Coal Mining revenue forecast by 8% and 13%, respectively, become to Rp 21.7 trillion and Rp 4.8 trillion. This is mainly due to an increase of sales in Komatsu and coal output which become to 7,000 units (from 6,250 units) and 4 million tons (from 3.7 million tons). As the result, UNTR consolidated revenue increases by 5%, whilst its net profit also advances by 5%-6% for the year 2011-2012.

Based on our new estimates and our new DCF valuation method (using new WACC assumption of 13.80% and 2012 as a basis year), we generated a new fair value of Rp 32,550/share (previously at Rp 27,300/share) which reflects EV/EBITDA FY12F of 9.67x. Re-iterate BUY recommendation since our fair value offered 23% upside potential from yesterday’s closing price, while the counter was trading at EV/EBITDA of 7.89x FY12.

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