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Wednesday, November 16, 2011

United Tractors

by Kresna Securities

Investment Thesis

We continue to recommend BUY on UNTR and upgrading our 12-month TP to Rp30,000 as we roll over the base year to 2012 and upgrade earnings by 14.5% - 3.3%. During yesterday’s analyst meeting, management discussed company’s 9M11 performance as well as the outlook for the rest of 2011 and 2012. The headlines are: 1) Thailand flood should have least impact to Komatsu supply for Indonesia, 2) Pama’s margin will continue progressing along with improving weather condition, and 3) Coal sales volume will balloon from the newly acquired coal mines, namely: ABP and DS, as well as the expanding production from PMM and TTA; this will also trickle to Pama’s contracting volume performance.

Key Catalysts

No worry on Thailand disaster, volume outlook remain robust. Amid concern about Komatsu supply disruptions from Thailand due to heavy flood, management mentioned that plant and port there, which are quite distance from the flood, are still running production smoothly. Thus, in October UNTR continued to record strong sales volume of 701units, giving YTD figure arrived at 7,097units.

Pama: Improving Margin. As people may notice, Pama GPM improved to 18.9% in 3Q11 from 15.0% in 2Q11, as no additional cost charged during dry season in 3Q11.

Entering the first month of 4Q11, dry season remained until the weeks 4 which rain started to show up. Meanwhile, for FY12F management aims to record 10% volume growth for both overburden removal and coal extraction by considering the existing contract on hand.

Coal business: volume jump in the pipeline. Company targets to increase coal production by 33.3%-55.5%YoY to 6-7mt in 2012. Except the existing contribution from PMM and TTA, company targets to receive contribution from ABP and DS next year. Meanwhile, for ABB company hopes to commence production in 2013, after finishing the logistic and administrative issue. Additionally, currently it is on the middle of bidding process on 2 new coal assets; company still has around Rp540bn allocated for acquisition.

Earnings Outlook

Komatsu sales: Upgrade 2011, maintain for 2012. In respect to the strong YTD realization of 7,097 units up to 10M11, while HINABI also projects Indonesia Market for Heavy Equipment to hit 17,000 units in 2011, we raise FY11E assumption to 8,400units. Meanwhile, for FY12F we decide to maintain our sales volume forecast of 9,375 units, giving a moderate growth assumption of 11.6%YoY.

Pama: Upgrade the margin. Due to strong realization of overburden result, we decide to upgrade FY11E OB volume by 3.4% to 764m bcm, but yet maintain FY12 volume outlook. Meanwhile for margin wise, we increase our assumption by 2% to 16.0% on the back of normal weather expectation and strengthening dollar.

Coal division: Maintain the expectation. We continue to maintain our estimates for coal business for 2011 as well as 2012. We assume company to sell 4.2mt coal, on the back of strong volume expectation in 4Q11; the rain started to show up in November should smooth coal delivery via the river. Meanwhile, for 2012 we maintain our conservative assumption of 3.0mt coal sales from PPM, 2.5mt from TTA and 0.5mt from new acquired asset.

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