Company update:
United Tractors (UNTR IJ, BUY, TP: IDR30,400)
Dry Season To Boost Mining Contracting Volume
United Tractors (UNTR IJ, BUY, TP: IDR30,400)
Dry Season To Boost Mining Contracting Volume
BMKG’s
forecast that most of Sumatera and Kalimantan would see the dry season starting
from June should improve revenue and profit margins of mining contracting operations
– on mining contracting volume pick-ups. United Tractors has booked strong
Komatsu sales, mostly on the coal price recovery and heavy equipment
replacement cycle. We upgrade our call to BUY (from Neutral) with a new
IDR30,400 TP (from IDR26,300, 17% upside) as we rollover our valuation to 2018.
Near-term catalyst is monthly mining contracting volume improvements in the
coming months.
¨ Mining contracting
volume should pick-up in the coming months. Mining contracting is the biggest
contributor to United Tractors’ consolidated revenue (1Q17 consolidated
revenue: 46%). Although it has booked sizable mining contracting volume growth
in April (+15% YoY, +4% MoM), the rise in 4M17 mining contracting volume was
still curbed by heavy rains during the wet season. Coal mining firms’ sites are
located in Kalimantan and Sumatera. Indonesian Agency for Meteorology,
Climatology and Geophysics (BMKG) forecasts most areas in the two islands would
see dry season commencement from June (Figure 1). This should make mining
contracting volumes for both overburden removal and coal production pick up, as
rainy days become less frequent. Based on our discussion with several coal
mining companies, rainfall has lessened since mid-May. This should improve the
overburden removal and coal production volumes for such firms, in our view.
¨ Strong Komatsu sales. United Tractors has
booked strong Komatsu sales, especially to the coal mining sector. This was
mostly due to the coal price recovery and heavy equipment replacement cycle.
Its April Komatsu sales of 339 units (+78.4%YoY, +8.3%MoM) are the highest
since Apr 2014. Its 4M17 Komatsu sales of 1,186 units are above our
expectation. Thus, we fine-tune our FY17 Komatsu sales assumption to 3,520
units from 2,415 units previously.
¨ Higher blended heavy
equipment selling price. The proportion of Komatsu unit sales to the mining
sector increased to 48% in 4M17 (3M17: 41%, FY16: 30%). Higher heavy equipment
sales to the mining sector should increase United Tractors’ blended ASP. This
is as selling price/unit of mining heavy equipment is higher than price/units of
heavy equipment to other sectors. This is due to significant difference in
heavy equipment sizes.
¨ Upgrade to BUY (from
Neutral) with DCF-derived IDR30,400 TP (from IDR26,300). We fine-tune our
assumptions and tweak FY17F-18F earnings by 5.4% and 11.1% respectively. We
upgrade our recommendation to BUY with a new DCF-derived IDR30,400 TP (WACC:
13.8%, LTG: 2%) as we rollover our valuation to 2018.
Our
TP implies FY18F-19F P/Es of 14.5x and 13.6x respectively on our EPS estimates
for these respective periods. We think improvements in the monthly contracting
volume in coming months should be the near-term catalyst. Key risks to our call
include significant decreases in coal prices, weaker-than-expected coal demand
and significant strengthening of the IDR.
Kindly click the following link for the full report: United Tractors : Dry Season To Boost Mining Contracting Volume
Best regards,
Hariyanto Wijaya,
CFA, CFP, CA, CPA, CFTe
Vice President
Research Analyst – Heavy
Equipment, Coal, Plantation
PT RHB Sekuritas
Indonesia
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