Danareksa Equity Snapshot – UNTR, 26 November 2018

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Stefanus Darmagiri

United Tractors (UNTR) reported impressive Komatsu sales volume of 500 units (+8.7% mom, +59.2% yoy) in Oct 2018, a record high in the past four years. As such, on a cumulative basis, Komatsu sales volume is up 36.7% yoy to 4,181 units in 10M18 or 87% of our full year forecast – slightly better than expected. Maintain BUY with a target price of IDR43,000 (based on DCF valuation with WACC of 12% and long-term growth of 3%).

Record monthly Komatsu sales volume in the past four years. Komatsu continued to post impressive sales (+8.7% mom to 500 units in Oct 2018) thanks to strong sales to the mining, agri and construction sectors, albeit partly offset by lower sales to the forestry sector. The Oct 2018 sales figure is the highest monthly sales figure since the beginning of 2014. Supported by solid coal prices, Komatsu sales volume climbed 36.7% yoy to 4,181 units in 10M18, with sales to the mining sector posting the highest growth (+44.9% yoy), followed by sales to the agri sector (+41.6% yoy) and the construction sector (+30.2% yoy).

Solid coal production and OB removal. With better weather conditions since Jun 2018, the mining contracting division under Pamapersada Nusantara (PAMA) showed solid operational performance with coal production up by 9.8% yoy to 102.1mn tonnes and OB removal up by 21.7% yoy to 809.1mn bcm in 10M18. The management has provided guidance for coal production of 120mn tonnes and OB removal of 935mn bcm in 2018.

Conservative targets for 2019. The management still sets conservative targets for 2019 owing to the widening gap between low CV coal prices and Newcastle coal prices which may adversely impact coalminers. Hence, Komatsu sales volume is forecast to increase moderately by 4.2% yoy to 5,000 units in 2019 following supply side improvements from Komatsu in 2H18. Coal production and OB removal are forecast to increase by only 5% yoy.

Maintain BUY with a target price of IDR43,000 (based on DCF valuation with a WACC of 12% and long-term growth of 3%) given the expectation of solid demand for heavy equipment, better weather conditions and the favorable exchange rate. Downside risks include faster-than-expected consolidation in coal prices which would encourage coalminers to postpone investment in purchases of heavy equipment.

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