United Tractors, Feb Volume Wrap: A recovery, but tracking lower than guidance in 1Q, JP Morgan

UNTR's 14% outperformance versus the JCI over the last quarter has been
boosted, in our view, by its limited exposure to policy risk and inflation
pressures relative to other blue chips. While growth prospects and
favourable currency leverage still dispose us positively, tighter valuations
now mean that UNTR probably needs to deliver Komatsu sales matching
guidance (9,000-9,500 units) rather than our more conservative 8,000 unit
estimate to open up fresh absolute upside. Maintain OW, Rp 32,500 PT.


 Feb Komatsu’s recover, 1Q flat y/y: UNTR’s February volumes (769
units) up 12% y/y and 25% m/m, show that January’s dip was
temporary. Assuming 800 units sold in March, 1QFY12E should be flat
y/y. While that suggests volumes are tracking lower than FY12E
guidance (9,000-9,500 units), 1Q has not always been an accurate guide
to full year growth (table on page 3).

 Coal Operations Robust: Contract Mining output was up 14% y/y in
February and YTD strip ratios are up to 9.3x, which, in conjunction with
the weakening Rupiah, bodes well for margins. UNTR’s own coal
output picked up to 625k MT in Feb (1.12m MT YTD), tracking nicely
along our forecast of 55% growth in volumes to 7mMT.

 Maintain 32,500 PT: At 16.7x FY12E, UNTR’s PE looks demanding,
but is within historical range. For further upside to open up we feel we
need Komatsu sales to track closer to FY12E guidance/consensus versus
our own 8,000 unit estimate, or need visibility on FY13E. Ahead of
either, we have limited cause to raise forecasts, hence though positively
inclined towards the stock, maintain our Dec-12 Rp 32,500 PT.

 Declining Coal prices are a risk: Even though UNTR remains largely a
play on coal volumes, coal price exposure is increasing. We suspect that
a section of investors own UNTR for coal exposure. Coal prices have
declined 10% in the last month, and further weakness is a risk to our PT.

Download file : UNTR 20 March 2012 JPM