UNTR Strong numbers continues into Feb - DBS Vickers

Feb Komatsu sales above estimates
Pama was in line; expect higher output in 2Q and 3Q
Maintain Buy and Rp27,200TP.

Feb Komatsu sales was above our expectation. Komatsu sales in February came in at 687 units(+75%y-o-y), declining 6%m-o-m from 731 units in January but well above our monthly forecast of 517 units. This should indicate that strong sales in January may not have been just
a one-off event as sales to the mining sector, which accounts for 69% of unit sales, continue to surprise us on the upside. This year, we estimate sales volume to grow by 15% to 6,150 units, in line with company guidance. 2M11 sales already account for 23% of our FY11F.

Pama was in line. Coal production and overburden at Pama was flat at 6.2m tons and 54.9m bcm, below our average monthly forecast of 7.1m tons and 59.7m bcm respectively. This is in line with our estimates as 1Q is usually the weakest due to the wet season. Historically, coal production and overburden in 1H accounts for 47% of total production with YTD sales reaching 12.7m tons and
111.7m bcm respectively, and accounts for 15% of our FY11F.We expect better numbers from 2Q onwards.

Coal mining is improving. Coal sales in Feb rose by 6% m-o-m to 326k tons supported by higher production at Tuah Turangga Agung (TTA) while coal production at DEJ was flat due to depleting reserves. This year, we are expecting coal production of 3.6m tons, of which 1.2m tons will
come from TTA while DEJ is expected to contribute 2.5-2.5m tons. In terms of pricing, we estimate UT has locked-in up one-third of DEJ output at US$82/ton with the balance linked to the index. Coal output from DEJ is usually priced similar to the Newcastle price index due to the high heat value, while output from TTA is priced at 10% discount to the index.

Impact from Japan’s earthquake is still unclear. UT is still assessing the impact from the earthquake in Japan on its operations. Komatsu reported that its Ibaraki, Oyama, and
Kooriyama facilities have been extensively damaged by the tsunami and have stopped production. Many suppliers are also impacted with logistics heavily damaged. UT has indicated that Komatsu’s inventory is sufficient to support 2-months delivery. However, we believe that it is still too
early to quantify the impact of the event and we are maintaining our numbers for now.

Maintain Buy and Rp27,200 TP. We reiterate our Buy call for UT with DCF-based target price of Rp27,200 (WACC 12%, terminal growth 3%). The stock is trading at an attractive 16x FY11F PE on 22% earnings CAGR in FY10-12F. Despite the short-term headwinds, we believe that UT’s long-term growth story remains intact. UT is the prime beneficiary of rising coal mining activities in Indonesia as UT is the market leader in both construction machinery (46% market share) and mining contracting (44% market share) in Indonesia.