COMPANY_NOTES UNTR_Updates From Komatsu Japan - Indopremier

Good news winded from Komatsu production facilities in Japan. Three Komatsu plants have recovered soon after the earthquake and expected to operate shortly. However, electricity shortage could be a major issue before return to full speed. We are optimist that the quack’s effect is minimal to UNTR’s full year performance. For conservative reason, we cut our Komatsu sales target from 6,000 units to 5,800 units to reflect current disruptions. BUY recommendation remains for UNTR with TP Rp 25,800 per share (12.1% upside)

Early Recovery
From seven production plants, three plants were damaged by the quake:
1. Ibaraki Plant (dump trucks and large size wheel loaders)
One of the Komatsu plants that hit the most by the quake. Early and rapid recovery after the quake give us the optimism to gradually resume its operation as early as middle of this week
2. Koriyawa Plant (hydraulic cylinders and components)
This plant only suffered some damages. Current problem is gasoline supply, which affected employee’s mobility. The gasoline supply is expected to ease up this week and operation should be back to normal shortly
3. Oyama Plant (engines and hydraulic components)
This plant suffered some damages in buildings and facilities. The damages were restored and it has started the manufacturing operation on 18 March 2011.

Electricity, Hitachi Naka port, and Komatsu parts and Components
Electricity also becomes main issue before all three plant return to normal production given main damage of nuclear power plants. Another issue comes from damage Hitachi Naka port where Komatsu ships its product from Ibaraki Plant. Reconstruction has begun and may take 1.5 to 2 months to come back to normal. Alternatively, Komatsu is seeking other port temporarily. The last issue is the Komatsu parts and component suppliers, where from 200 suppliers, half of them suffered some damages as well. In order to restore the supply of parts and components, Komatsu also tries to find other alternative sources such as in-house or other suppliers.

Adjusted Down Komatsu Sales Target
We expect the disruptions to have minor impact to UNTR’s full year performance. Normal supplies activities may incur in 1-2 month a head, while at present UNTR estimates its inventory is adequate for three months sales. Hence we see UNTR’s Komatsu sales will remain stable in the next two months. The disruptions are likely arise in May to July as UNTR’s inventory comes to empty among uncertain Komatsu supplies from Japan, especially dump truck and large size wheel loaders. We cut our Komatsu sales to 5,800 units from previously 6,000 units to anticipate unfavorable Komatsu sales result in the mid of year.

Downgrade but Still BUY
We downgrade our TP to Rp 25,700 per share (from Rp 26,300 per share) to reflect Komatsu’s issues. We believe UNTR’s FI11 performance will benefit from commodity price hike as more order for Komatsu and more order for mine contracting service. Hence, we estimate UNTR to deliver 12.5% YoY and 5.7% YoY revenue and net profit growth. Our target price reflect 21x PER and 9.3x EV/EBITDA in 2011.