United Tractors: Buy; Rp24,600; TP Rp25,700; UNTR IJ To acquire two more coal mining - DBS

United Tractors (UNTR) through its subsidiary Tuah Turangga Agung (TTA) has signed conditional sales and purchase agreement (CSPA) to acquire 60% stake of Duta Sejahtera (DS) for US$11.5m. Based on the agreement, TTA also has option to acquire 60% stake in Duta Nurcahya (DN). DN and DS are estimated to have combined reserves of 25-100m tons with calorific value of 6,000-6,300kcal (adb). This acquisition will be financed by its recent Rp6tr (US$600m) rights issue and UNTR has also set aside up to US$270m (45% of RI proceeds) to acquire coal mines.

UNTR recently announced the plan to acquire 20% stake of Bukit Enim Energi (BEE) worth US$21m for 110m tons of reserves with CV of 4,500-6,000kcal (adb). UNTR also plans to acquire 30% stake of Asmin Bara (AB) with options to increase its stake to 60%. AB has 61m tons of reserves with CV of 5,800 – 6,900kcal. Taking into account the acquisition of DS, DN, and AB, we estimate UNTR will increase its coal reserves to up to160m tons from only 50m tons. We believe this is consistent with its grand strategy to increase the contribution from its coal mining business from less than 10% of revenue to as much as 30%. Maintain Buy, TP of Rp25,700/share.