United Tractors - Strong Komatsu sales continue in February - Deutsche Bank

Strong February heavy equipment sales
Komatsu sales in February remained stellar reaching c. 690 units (tentative), +74% YoY, which showed that the record high monthly sales in January totaling 731 units was not just simply due to carry-over sales from last year. We attributed this condition to strong heavy equipment demand following buoyant coal and palm oil prices. United Tractors (UNTR) heavy equipment sales in 2M11 has exceeded our monthly sales forecast of 565 units translating to 6,500 units (UNTR: 6,000 units; +11% YoY), +20% YoY, in 2011F.

Supply availability would be limiting sales factor
We believe the challenge for delivering higher sales would come from the supply availability as we have heard about supply difficulty that hit Hitachi and Kobelco. Meanwhile, UNTR confirms that the supply availability from its principal is tighter than last year given the demand from other market outside Indonesia is recovering going into 2011. In this year, UNTR has received a confirmed heavy equipment supply from Komatsu totaling 6,500 units. UNTR needs to negotiate with Komatsu for additional supplies - once its sales hit above 7,000 units, the principal must sacrifice its supply to other markets for Indonesia (happened in 2010 as UNTR's sales exceeded 5,000 units).

Maintain Buy rating with TP of Rp30,000
This Buy rating is predicated upon its strong earnings prospects following (1) buoyant commodity prices, particularly coal, which accounts for 90% of its consolidated earnings; and (2) the expected weather normalization that should lead to sharp earnings and margin improvement at Pama. The stock's share price has been relatively unchanged and performing inline with the market in the past 3 months trading at 14.9x, at par to the market.