Company update/Coorporate Flash Notes/ Sector update:
United Tractors (UNTR; BUY; TP: IDR 22,100)
Firing On All Cylinders
United Tractors (UNTR; BUY; TP: IDR 22,100)
Firing On All Cylinders
We think the
consensus’FY17F earnings and share price still do not reflect United Tractors’
anticipatedsignificant earnings recovery in FY17. We expectearnings to
surge38.7%YoY in FY17, driven by:
1. Strong spare parts and service revenuebenefiting
from the refurbishment cycle, which should kickin next year;
2. Recovery in heavy equipment sales to
the mining sector in FY17F;
3. Growth of mining contracting volume.
Our FY17F EPS is
20.6% higher than consensus.BUY, with aIDR22,100 TP (23% upside) implying 13.8x
FY17F P/E, +0.1SD from 10-year mean.
¨
Refurbishment
cycle to boost FY17F spareparts and services revenue.Heavy equipment
thathas been utilised for about five years needs tobe refurbished in order to
extend its operational life. Refurbishment costs are around 40% of the price of
new heavy equipment. Heavy equipment distributors record refurbishments under
spare parts and services revenue. For United Tractors, the GPMat its spareparts
and services unit is 25%, higher than that of heavy equipment sales (10%). We
think the refurbishment cycle stemming from peak FY11 heavy equipment sales
should boost FY17F spareparts and services revenueto IDR8.8-10.4trn (vs
IDR5.9trn in FY16F).
¨
Heavy
equipment demand from mining sector is recovering. Our channel
checkswith industry contacts indicate thatheavy equipment orders from the
mining sector arerecovering. As it requires alead time of around three months
from order to delivery to customers, the recovery in heavy mining sales to the
mining sector should be reflected in operational statistics starting end-FY16F.
¨
Growth
of mining contracting volume should resume in FY17F.China’s low coal
inventory has caused it to increase coal imports from Indonesia. Coal exports
to Chinareached 9.4m tonnes in August (+53.5%YoY). Meanwhile, Indonesia’s coal
inventory level is low, as reflected in current coal inventory levelsrecorded
by PT Pamapersada’s clients. We think PT Pamapersada’s mining contracting
volume should resume growth in FY17, from an increase in coal production and
the higher stripping ratio due to the growth in coal demand from China and
South-East Asia.
¨
Mixed
operational performance. In August,United Tractorsbooked flat Komatsu sales of 174
units. Most of its heavy equipment sales was to the construction sector. Mining
contracting volume improved by 15.9% MoM but itsstripping ratio was
unchanged from July. Meanwhile, coal sales decreased to 451,000 tonnes, due
tolow water levelsin therivers.
¨
Reiterate
BUY.We
fine-tune our assumptions and liftFY16F-18F earnings by 3.2-7.5%. We reiterate
our BUY call, with a revised TP of IDR22,100(from IDR20,900) as we think United
Tractors’ earnings should recover sizeably in FY17F. This we believe is still
not reflected in its share price. Risks to our call areweaker-than-expected
coal demand and markedstrengthening of the IDR.
Kindly click the following link for the full report: United Tractors : Firing On All Cylinders
Hariyanto Wijaya,
CFA, CFP, CA, CPA
Vice President
Research Analyst – Heavy
Equipment, Plantation
PT. RHB Securities
Indonesia
