United Tractors (UNTR Neutral PT 24,000): Fairly valued, upgrade to Neutral - UBS Indo

Analyst Felicia Tandiyono raised her rating on UNTR to Neutral, with pre- and post-rights issue PT of Rp24,000 and Rp23,200 per share respectively. Felicia thinks UNTR is fairly valued at 13x 2012 P/E – the average multiple over the past five year – and views UNTR to have mixed divisional performance at this juncture.

Felicia’s views on UNTR’s divisional performance are:
· Heavy equipment: Bullish on machinery demand in the medium-term, yet concerned on short-term supply due to recent catastrophe in Japan .
· Mining contracting: Margin recovery on improving weather conditions, concerns over volume delivery due to volatile coal price.
· Coal mining: Still in gestation period, the division needs to grow sizably to provide better synergy with other divisions (1 & 2).
· Coal-fired power plants (potential): An expansion of UNTR's business model, which would provide synergies with other divisions (1, 2 & 3). However, power plant's ROE is lower than UNTR's other divisions at present.

UNTR announced its rights issue, raising Rp6.0 tn or around US$690 mn, last week. The use of proceeds will be used for: 1) coal concessions acquisition, US$279 - 341 mn; 2) mining contracting service division, US$172 - 217 mn; 3) coal-related infrastructure projects, if possible including a mine-mouth power plant, US$93 - $155 mn; and 4) general working capital, the remainder.