United Tractors – Coal-based growth (UNTR-BUY-IDR23,050-TP:IDR30,000) - Bahana Sekuritas

2011 estimated Komatsu sales of 6.2k units, up 15.4% y-y
Despite higher base stemming from 2010 new record high sales volumes across United Tractors’ (UNTR) business units, ongoing expansions in the commodity-related sectors would continue to support 2011 growth performance, albeit at slower pace. Growth contribution would mainly
be driven from the coal sector, which in aggregate (based on seven companies under our coverage) would register 2011 sales volume growth of 15.3% y-y to 214m tons (exhibit 16). This would not only benefit Komatsu but also the mining contracting unit of Pama Persada. Note that contribution from the mining sector to Komatsu sales volumes in 2010 was the highest, reaching 61% from 45% in 2006. Going forward, with 2011 estimated domestic sales volumes of 13,000 units and stable market share assumption of 48%, we expect sales volumes to reach 6.2k (+15.4% y-y), 5% higher then UNTR’s estimate of 6.0k units (+10% y-y).

4Q10 volumes down on seasonality; On target to reach our estimate
In 4Q10, seasonality factor resulted in lower Komatsu sales of 1,290 units (-6.7% q-q), bringing 2010 sales volumes to a new record high of 5,404 units (+74% y-y), in line with our estimate. On a more positive note, despite continued heavy rainfalls, Pama Persada managed to register 4Q10 coal extraction of 20.9m tons (+8.85% q-q) and overburden removal of 171.2m bcm (+3.57% q-q). This brought 2010 coal production and overburden removal to within our estimates of 78m tons
(+14.4% y-y) and 651m bcm (+8.6% y-y) respectively. Furthermore, Dasa Eka Jasatama (DEJ) continued to show 4Q10 sales volume improvement to 774k tons, up 27.9% q-q. Nevertheless, while volumes across every business units were within our estimates, weakening USD/IDR coupled
with the severe impact from the La Nina to UNTR margins would result in relatively flat estimated 2010 earnings of IDR4.0t (+4% y-y).

Mining division to support long-term earnings growth; retain BUY
On the mining front, Pama’s proven track record for volume deliveries would result in estimated coal extraction growth of 12% y-y (87m tons) and overburden removal growth of 15% y-y (749m bcm). We believe that higher production achievement would persist in 2Q11 and 3Q11 on
expected normalized rate of rainfall. Note that in 2010, UNTR suffered from heavy rainfalls (6-7 lost days vs 3 – 3.5 lost days under normal condition), resulting in margin contraction from higher production costs. Additional support would also stem from higher production target of DEJ and Tuah Turanggah Agung (TTA), which in aggregate would result in 2011 coal sales volume estimate of 3.5m tons, up 34.3% y-y. This coupled with higher coal price estimate of USD85/tons has raised our 2011 revenue from mining activities by 2.7% to IDR22.1t (+15.0% y-y), raising our consolidated earnings slightly by 1.9% to IDR4.6t, up 15.6% y-y. Over the longer run, UNTR’s
continued strategic focus in expanding its mining business unit suggests promising fundamentals going forward. Thus, we retain a BUY with our DCF-based TP of IDR30,000.