Corporate Flash United Tractors - Bahana

2Q11 preview: Plenty of cushion to our numbers
§ With estimated flat m-m Komatsu’s volume growth in June, we expect 2Q11 sales volumes to fall 10.1% q-q to around 1,984 units, stemming mainly from the lagging impact of supply disruption from the recent earth quake in Japan . Nevertheless, this translates to 1H11 sales volumes of 3,591 units, still up 61.4% y-y. This strong growth provides cushion since we only expect full-year heavy equipment sales of 7,100 units, up just 30% y-y on further weakness in the next couple of months. However, UNTR expects sales volumes to recover in July/ August.
§ On the mining contracting front, less rainfalls in May and June would underpin 2Q11 estimated production volumes to 20.3m tons (+5.8% q-q) and overburden removal to 197m bcm (+17.8% q-q). Nevertheless, with higher fuel costs and strong IDR to USD, we expect continued flat operating margin of around 13% in 2Q11.
§ On the coalmines business unit, new monthly record high of 416k tons in April volumes and 370k tons in May and June will mean 2Q11 sales volumes of 1.2m tons, up 15.8% q-q. This coupled with ASP of around USD100/ton will result in solid 2Q11 15% q-q revenue growth to IDR1.2t.

Outlook: Rights issue to ensure coal-related expansions
Incorporating 2Q11 operating performance outlook in each business unit, we expect UNTR to register flat q-q earnings growth. On a more positive note, continued strong performance on a y-y basis would result in stellar 1H11 earnings growth of 37% y-y to IDR2.6t. Note that UNTR has just successfully completed its IDR6.1t rights issue, of which mostly would be used for expansions in its coal-related business units. Thus, we retain our medium-term positive view on UNTR’s capability to secure organic earnings growth.

Recommendation and valuation: Catalyst from coalmine acquisitions
In line with our unchanged 2011 forecast, we maintain our DCF-based TP of IDR28,500 on UNTR. Positive catalyst in 2011 would come from the potential successful acquisitions of new coalmines, resulting in higher coal sales volumes and mining contracting activities in the coming years. BUY.