Company
update:
United Tractors (UNTR IJ, BUY, TP: IDR24,700),
Strong Earnings Recovery Ahead
United Tractors (UNTR IJ, BUY, TP: IDR24,700),
Strong Earnings Recovery Ahead
We
estimate United Tractors should book a strong earnings recovery of 38% in FY17
on higher mining contracting volume and better mining contracting fees,
increased equipment sales to the mining sector; elevated spare parts sales and
improved coal sales. As it booked better-than-expected 9M16 core earnings, we fine-tune
our assumptions and reiterate BUY with a higher DCF-derived IDR24,700 TP (from
IDR22,100, 14% upside, 14.9x FY17F P/E). We think a sizable earnings recovery
is still not fully reflected in consensus expectations and its share price.
¨
Higher
coal mining contracting volume in FY17 with better mining contracting fees. A significant
recovery in coal prices in FY17 should trigger higher domestic coal production,
increased stripping ratio and improved mining contracting fees in FY17. Note that
the higher domestic coal production is partly to fulfil China’s increasing coal
imports to replenish its low coal inventory level. In 9M16, imported coal to
the East Asian nation from Indonesia increased by a sizable 22.5%YoY (Figure 3)
¨
Improving
demand for heavy equipment from the mining sector. Based on our channel
checks, demand for heavy equipment from the coal mining sector is starting to
recover. This also can be seen from United Tractors’ 9M16 heavy equipment sales
(Figure 5). As it takes around three months from order to delivery, we think
this improving demand should start to be fully reflected in sales statistics at
end-2016/start of 2017. Selling heavy equipment to the mining sector should
boost revenue, because this industry uses giant-sized heavy equipment. The
heavy equipment sales ASP to the mining sector is at least 3x the selling price
to the construction industry.
¨
Refurbishment
cycle should boost spare parts sales. We think peak heavy equipment sales to mining
sector in 2011 should boost spare part sales from 4Q16. This is as the sector
is now entering its refurbishment cycle. Refurbishment costs are ~40% of the
price of new heavy equipment, which should boost spare parts sales. For United
Tractors, the GPM of its spare parts and services unit is 25%, ie higher than
heavy equipment sales (10%).
¨
9M16
core earnings above our/consensus estimates. United Tractors booked healthy 3Q16
core earnings (+14.3%QoQ, -29.6%YoY) on higher earnings from mining contracting
and coal mining concessions. 9M16 core earnings were 81.6% (our) and 78.4%
(consensus)of FY16 expectations.
¨
Reiterate
BUY with a higher IDR24,700 TP. We fine-tune our assumptions in order to
factor in better-than-expected 9M16 earnings by increasing FY16F-18F earnings
by 3.4-4.7%.
¨
We
reiterate our BUY call with a higher DCF-derived IDR24,700 TP, which
implies14.9xFY17F P/E. Key risks to our call include a significant drop in coal
prices, weaker-than-expected coal demand and a strengthening IDR.
Kindly click the following link for the full report: United Tractors : Strong Earnings Recovery Ahead
Best regards,
Hariyanto Wijaya,
CFA, CFP, CA, CPA
Vice President
Research Analyst – Heavy
Equipment, Plantation
PT. RHB Securities
Indonesia
