United Tractors Further Deterioration in 1H13

UNTR’s 1H13 revenue and earnings fell 18.7% and 25.2% y-o-y respectively
While revenue made up 55% and 57% of consensus and our FY13F estimates respectively, its earnings only comprised 45% and 47% of the respective forecasts, no thanks to margin pressure. We cut our FY14F numbers by 19.5% on its deteriorating earnings. Maintain NEUTRAL call on the stock, with a IDR18,000 TP.

In line
United Tractors (UNTR) booked revenue of IDR29.4trn in 1H13 (-18.7% y-o-y) and earnings of IDR2.3trn (-25.2% y-o-y). Its performance was largely in line with expectations, with revenue at 55% and 45% of consensus and earnings at 57% and 47% of our estimates respectively. The y-o-y drop in earnings was due to a decline in gross margin, which shrank to 17.3% in 1H13 from 18.1% in 1H12.

Earnings soften on weak coal prices
UNTR’s construction machinery division saw a 40.1% y-o-y drop in revenue due to weaker unit sales (down 42.0% from the previous corresponding period). We attribute this to the continued weakness in coal prices and higher interest rates – similar to what happened in late-2008 to mid-2009. Its subsidiary, PT Pamapersada Nusantara (Pama), posted 11.7% y-o-y revenue growth, but the increase was slower than the 12.5% y-o-y rise in coal production as the company’s stripping ratio shrank to 8.3x in 1H13 from 9.2x in 1H12.

Meanwhile, the mines belonging to PT Prima Multi Mineral and PT Tuah Turangga Agung (also UNTR subsidiaries) incurred losses for the first time since commencing operations due to their slim 1.8% gross margin on the back of high cash costs. UNTR has indicated that it will focus on fulfilling existing contracts (which make up c.70% of its 5m-tonne target for FY13F) and may cease short-term production if the losses persist.

Tweaking FY13F-FY14F estimates, TP shaved to IDR18,000
Due to the further deterioration in UNTR’s earnings profile and the grim outlook for coal prices, we cut our FY13F and FY14F net profit estimates by 5.1% and 19.5% respectively. We maintain our NEUTRAL call on UNTR, but at a lower TP of IDR18,000, implying 14.5x FY13F and 13.6x FY14F P/Es. The stock is currently trading at a 13.3x FY13F P/E.