Updates from United Tractors (UNTR IJ), comment from Sarina - CLSA

1) Komatsu's Production Facility in Japan:
Manufacturing facility in Ibaraki Plant is expected to gradually resume operations as early as middle of this week. Ibaraki plant is the one that got hit the most out of Komatsu plants. The plant produces dump trucks and large size-wheel loaders
Some damages on Koriyawa Plant, which produces hydraulic cylinders and components. Current problem is gasoline supply, which affected employees’s mobility. The gasoline supply is expected to ease up this week and operation should be back to normal shortly.
Oyama Plant (engines and hydraulic components) has started operation on 18 March. This is located nearby the disaster area has suffered some damages in buildings and facilities, although minor compared to Ibaraki Plant.
Electricity supply at the three plants mentioned above, could become major issues before they all could return to full production.

2) Suppliers:
Komatsu procures parts and components from more than 200 suppliers, about half of which suffered some damages. Among them, around 30 suppliers suffered serious damage in manpower and facilities. Komatsu currently continues to evaluate the damage and to support the suppliers’ efforts toward recovery, in order to restore the supply of parts and components. At the same time, Komatsu is also trying to find other alternative sources such as in-house or other suppliers.

3) Infrastructure:
The most critical issue is on the damaged Hitachi Naka port where Komatsu ships its product from Ibaraki Plant, and the roads connecting Ibaraki Plant and the port. Reconstruction work already started last week at one of the pier. It may take 1.5 to 2 months until Komatsu can start export shipment from Hitachi Naka port. For the time being, Komatsu is seeking alternative port to send heavy equipment from Ibaraki plant, until the restoration of Hitachi Naka port is completed. (We got the same information from Hexindo, the sole-distributor of Hitachi)

Our Comment:
We are glad to learn that plants operation will resume earlier than expected. UT has estimated 2-3 months inventory available for now. We had expected a softer growth of unit sales of Komatsu of 5,730 units for 2011, a 6% YoY growth to reflect any short-term supply disruption.
Long term growth story intact. UT is a direct beneficiary of growing demand for coal given its dominance in the industry.
Now trading at 15.0 PE11, OPF on UT, offering 12% upside. Upside risk to our numbers after this short-term supply disruption.