Corporate Result Flash United Tractors - Bahana

2Q11 performance
§ On lower 2Q11 Komatsu sales of 2,126 units (-3.7% q-q), UNTR registered lower 2Q11 earnings of IDR1.2t (-4.2% q-q), bringing 1H11 net profit to IDR2.5t (+35% y-y), in line with our and consensus estimates.
§ UNTR’s 2Q11 operating profit fell 3.4% q-q to IDR1.6t, translating to 1H11 operating income of IDR3.3t (+26% y-y), still on track to meet our 2011 target of IDR6.7t (+28.9% y-y). On the margin front, while construction machinery unit booked lower 2Q11 margin of 14% (from 16% in 1Q11), less rainfalls helped Pama to register significant margin improvement to 13.1% from 9.6% in 1Q11. This provided some cushion on UNTR’s 2Q11 operating margin contraction to just 17% from 17.6% in 1Q11.
§ Higher 2Q11 overburden removal of 18.5% q-q to 198m bcm on Pama compensated lower income from construction machinery, resulting in slightly higher consolidated revenue of IDR13.0t, up 2.5% q-q. This brought 1H11 revenue to IDR25.6t (+41.7% y-y), in line with our and consensus forecasts.

Outlook
Given solid performance in 1H11 and outlook of improved volumes in the following quarters, UNTR is poised to register 2011 earnings growth of 30% y-y to IDR5.2t. We expect positive impact from the recent rights issue to unfold in 2012, allowing UNTR to secure sustainable growth through expansions in the coal-related units.

Recommendation and valuation
We are placing UNTR’s target price under review given just 2% upside potential. Additionally, we plan to revisit our 2012 earnings forecast and roll over our valuation into next year.