Company update:
United Tractors (UNTR IJ; BUY; TP: IDR26,300)
Weakening IDR And Coal Price Recovery Play
United Tractors (UNTR IJ; BUY; TP: IDR26,300)
Weakening IDR And Coal Price Recovery Play
We
think United Tractors should be a good play to monetise the weakening IDR and
coal price recovery. We opine that IDR is to weaken further to IDR13,700 in
FY17 vs IDR13,290 YTD. Therefore, Pamapersada’s profit margins as the biggest
contributor to consolidated earnings should expand. This is on the combination
of the weakening IDR and mining contracting fee recovery. We also believe heavy
equipment sales would increase. This is due to the sizable rise in customers’
2017 capex for such equipment. Reiterate BUY with a higher IDR26,300 TP (from
IDR24,700, 20% upside).
¨ Beneficiary of a
weakening IDR. We
opine that the strengthening USD should cause the IDR to weaken further and
average at IDR13,700 in FY17 vs IDR13,290 YTD. The USD’s contribution to PT Pamapersada
Nusantara’s (Pamapersada) revenue and costs is at 100% and 60% respectively.
Its gross margins, the biggest contributor to United Tractors’ consolidated
earnings, tend to expand when the IDR weakens (Figure 1). We expect
Pamapersada’s gross margins to expand to 22% in FY17 on a weakening IDR and
recovery in mining contracting fees. This is due to the recovery in coal
prices.
¨ Heavy equipment sales
to improve sizably in FY17. We did channel checks on Delta Dunia Makmur.
Its subsidiary PT Bukit Makmur Mandiri Utama (Bukit Makmur) is Indonesia’s
second-largest coal mining contractor. Bukit Makmur has allocated a sizable
USD180m capex for FY17 (FY15: USD55m) (Figure 4), which is mainly slated for
the purchase of heavy equipment. This is because Bukit Makmur wants to replace
some portions of its mining contracting heavy equipment fleet. This should
boost United Tractors’ Komatsu and Scania unit sales for the mining sector
during this period.
¨ Reiterate BUY, with a
higher IDR26,300 TP. We
fine-tune our assumptions on the IDR to accommodate the view that the currency
would weaken further. This results in higher FY16-18 EPS by 4.6-7.2%. We
reiterate our BUY call with a higher DCF-derived IDR26,300 TP (WACC:12.2%,
LTG:2%), which implies 14.8x P/E on our FY17F EPS (its 6-year mean P/E). The
call is retained as we think its FY17 earnings recovery has still not been
fully factored in by consensus and share price. Our FY17F EPS is 22.5% higher
than consensus. We think revising up FY17F consensus earnings should boost
share price.
¨ Key risks to our BUY
call include
coal prices decreasing to <USD50/tonne and a strengthening IDR.
¨ October’s operational performance keeps
improving.
Pamapersada keeps booking improving mining contracting volumes (Figure 5). Its
October coal production grew 15.1%YoY (+10%MoM) due to the recovery in coal
prices. We think the decrease in stripping ratio to 5.9x in October is just
temporary. This is because coal companies are likely to increase their
stripping ratios in FY17, based on our channel checks. United Tractors booked
218 Komatsu sales units (+207%YoY, +7.4%MoM), with the construction and agro
sectors as the drivers of growth.
Kindly click the following link for the full report: United Tractors : Weakening IDR And Coal Price Recovery Play
Hariyanto Wijaya,
CFA, CFP, CA, CPA
Vice President
Research Analyst – Heavy
Equipment, Plantation
PT. RHB Securities
Indonesia
