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Wednesday, October 26, 2011

United Tractors Outlook

by Kresna Securities

Investment Thesis

We maintain our BUY call on UNTR with TP of Rp27,900. Operational results in September exhibited Komatsu machinery sales, overburden, coal extraction and coal sales grew by 64%, 28.7%, 23% and -1% YoY to 756 units, 69.1m bcm, 7.5mt and 298,000tons. Notably, the outperformed YTD result, machinery sales and overburden, which have arrived 85% and 79% to our FY11E target, may lead us to upgrade our estimate. Our sensitivity test shows that every 5% increase in Komatsu/overburden volume will increase FY11E EPS by 2.5%/1.5%. Recent Rupiah depreciation will also act as buying catalyst for the counter. Final revision will wait after the release of 9M11 result.

Key Catalysts

· Komatsu: another strong result. Sep11 sales rose 28.4% MoM to 756 units, concluding a 8M11 sales growth of 55.7% YoY to 6,406 units. Mining equipments remained as the major contributor, accounting 67.5% of total sales in the corresponding month. Meanwhile, market share still stood strong at 50%.

· Pama: Volumes slightly retreat. Mining contracting activities normalized in 2 months row, after it had inked a new high record in Jul11. In Sep11, both overburden removal and coal extraction volume fell 6.1%MoM and 2.6%MoM to 69.1m bcm and 7.5mt, respectively. Positively, strip ratio remained high at 9.2x in Sep11 as well as 9M11.

· Coal sales: flat but yet on track with target. Sep11 coal sales volume (PMM + TTA) was flat, reaching 298K tons. The 9M11 figure arrived at 3.2m tons which is inline with our FY11 target of 4.2mt.

Earnings Outlook

· 9M11 FS results: expect strong set of results. By the end of this month, UNTR should publish its 9M11 financial report. We expect the numbers are likely higher than ours as well as the streets. Recent rupiah depreciation will also act as buying catalyst for the counter

· Reviewing to upgrade FY11E: Following the strong 9M11 operational result, especially for Komatsu sales and OB volume (both have arrived at 85% and 79% to our FY11E), we are reviewing to upgrade our estimate. Our sensitivity analysis suggest that every 5% upgrade for Komatsu Sales will lead to a 2.5% upside in EPS, while 5% change on OB volume assumption will increase EPS by 1.5%.

· But may downgrade the FY12F. Amid woes on global economic outlook, we also plan to lower our volume growth assumption next year. Base on our sensitivity test, every 5% downgrade on Komatsu sales/overburden removal volume/coal extraction/coal sales, our FY12 EPS will decline by 2.5%/1.3%/0.6%/0.5%.

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