Sunday, November 27, 2011

United Tractors - Perform Strong with Komatsu

by Kresna Securities: UNTR

We reiterate our BUY rating on UNTR with TP of Rp30,000. October operational continued to perform strongly with Komatsu, OB removal, coal extraction and coal sales all growing, by 25.9%, 25.2%, 13.7% and 4.6% YoY, thus sending YTD numbers to 84.0% - 86.6% of our FY11E. For 2012, we project Komatsu, mining contracting and coal mining division to record 11.6%, 7.2% and 42.9% YoY volume growth, respectively, yielding a 22.4% YoY increase in net income, at Rp6.7tr.

Key Catalysts

Komatsu sales remained strong. Company managed to record another strong Komatsu sales period of 701 units in October, 25.9% YoY higher than the same period last year. Mining segment continued to become the prime contributor, accounting for 68.5% of total sales, followed by Agro (16.4%), Contruction (9.7%) and Forestry (5.4%). UNTR’s market share in Indonesia’s heavy equipment market still stood at a stellar 50%.

Pama: coal extraction hit a new record. Coal extraction volume reached a new high of 8.3mt in October, breaking the July record of 8.0mt. Meanwhile, overburden removal volume grew by 25.2% YoY to 76.4m bcm in October, implying a sustaining high strip ratio of 9.2x. This buoyant performance was mainly supported by very conducive weather throughout the month (rainy season phased in by the end of October).

Coal sales were flat. In October, coal sales only arrived at 321K tons, versus 298K tons in the previous month (and 307K tons for a comparable period the previous year). However, YTD achievement of 3.5mt still showed strong YoY growth figure of 54.8%.

Earnings Outlook

2011: all still conform to our expectations. 10M11 volume of Komatsu, overburden removal, coal extraction and coal sales have arrived at 84.5%, 86.6%, 84.5% and 84.0% of our FY11E, respectively, suggesting a slight outperformance compared to our FY11 targets. We expect the bold gross margin in 3Q11 to be carried over in 4Q11, on the back of sustaining strong US$ currency against Rupiah.

What’s the outlook for 2012? Management projects 10-15%YoY increase for Komatsu and Pama business division next year. Meanwhile, coal sales are targeted to record around a 50%YoY jump, mainly driven by the commencement of the new mine site at Agung Bara Prima and Duta Sejahtera. In our model, we assume 11.6% YoY growth volume for Komatsu, 7.2% for Pama output volume and 42.9% for coal sales.

We thus decided to maintain a conservative stance in view of lingering global economic uncertainty.

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