Corporate News Flash:
United Tractors (UNTR IJ, BUY, TP: IDR20,900),
China Coal Demand Means Earnings Recovery In FY17
United Tractors (UNTR IJ, BUY, TP: IDR20,900),
China Coal Demand Means Earnings Recovery In FY17
Indonesian
coal mining contracting service companies, like PT Pamapersada Nusantara (a
subsidiary of United Tractors), should benefit from China’s higher imported
coal volumes. China’s imported coal volume surged 52.1% YoY in August (to 26.6m
tonnes), in order to replenishits low coal inventory level, and its Government
policy of reducing domestic coal production. Reiterate BUY on United Tractors
and IDR20,900 TP (20% upside), as we think earnings should recover in
FY17, which is still not valued by the street.
¨
Relaxation
may curb coal price, but China’s coal imports shouldstay high. The increasein coal
price is higher and faster than expected (for Newcastle 6,000kcal/kg FOB,up
49.3% YTD to USD70.60 per tonne) as a result of the Chinese Government policy
of cutting coal production by 500m tonnes in the next three years.Several
Chinese coal producers have lobbied the Government to approve a plan to
increase coal output,which could add 8-9m tonnes of coal per month.
¨
Indonesia
to benefit. China’s
imported coal volume should keep increasing,after rising 52.1% YoY in August.
We think Chinese Government policy on curbing coal production may relax – and
this may mean the coal price retreats in 4Q16. However, any policy easing may
not be enough to replenish China’s currently low coal inventory, which should
keep imported coal volume high. Indonesia, as one of the main sources of
China’s imported coal,would be a beneficiary.
¨
China’s
Jul 2016 coal inventory is the lowest since Apr 2010,at 197m tonnes
(-13.7% MoM, -39.1%YoY). On top of that, Indonesian coal producers also have
low coal inventory, which can be seen from the inventory of Pamapersada’s major
clients.
¨
Indonesia’s
mining contracting volume should increase in FY17.China’s higher
imported coal volume in coming months and low coal inventory in Indonesia
should benefit Indonesia’s mining contracting service companies. This isas the
mining contracting volume should increase in FY17, from higher coal production
and a higher stripping ratio. We think Pamapersada, as the biggest mining
contracting service company, should benefit from this.
¨
Reiterate
BUYand
DCF-based TP of IDR20,900 (WACC: 13.7%, TG: 2%, implying 14.0x FY17F P/E, its
10-year mean P/E),as we think FY17F earnings should recover due to:
i. Higher mining contracting volume;
ii. Higher coal sales volume.
¨
Key
risks to
our call include:
i. Weaker-than-expected coal demand;
ii. A sizeable strengthening of the IDR.
Kindly click the following link for the full report: United Tractors : China Coal Demand Means Earnings Recovery In FY17
Best regards,
Hariyanto Wijaya,
CFA, CFP, CA, CPA
Vice President
Research Analyst – Heavy
Equipment, Plantation
PT. RHB Securities
Indonesia
