Kresna (KS)
*UNTR BUY TP Rp40,000*
UNITED TRACTORS (UNTR)
August overburden removal volume is the highest this year
Investment Summary
The Company managed to achieve its highest-yet monthly overburden removal volume in August, reaching 89.9mn bcm. This then brings 8M18 mining services volume to 623.8mn bcm, 22% higher than the 510.7mn bcm recorded over the same period last year.
Average stripping ratio is at 7.9x in 8M18, reaching a high point of 8.3x in August alone. We believe this is a result of increased demand from clients who expect the company to boost production in the relatively drier August weather.
However, Komatsu sales fell to their second-weakest monthly sales volume this year, to only 345 units in August from 303 units in June (holiday season). A weakening Rupiah has forced the Company to increase it selling price, a factor which eventually dampened customer demand.
Mining service business is at its highest performance level this year
To reduce trade balance deficits, the Government, through the Ministry of Energy and Mineral Resources, has increased production quota of 32 coal miners. As the market share leader in the country’s mining services business (reaching 35% in 1H18) we believe the Company is going to be the ultimate beneficiary of this policy.
Expecting better Komatsu sales untill end of this year
Given that the additional production quota given to 32 coal miners is not subject to DMO policy, going forward we expect heavy equipment demand will continue its robustness this year, considering most of the miners will try to raise their production so it can be sold at a much higher price in the export market. With Newcastle benchmark price still hovering at $114 /ton currently, the difference of export and DMO price ($70 /ton) already marks 63%. An opportunity to increase coal export cannot be missed by the companies in the sector.
Maintaining a BUY rating, at a target price of Rp40,000 (29% potential upside)
We are maintaining a BUY rating on UNTR, at a target price of Rp40,000 , implying 13.6x/12x of its 2018E/2019E P/E ratio. We favor the Company because of its superiority in Indonesia’s coal mining services and heavy equipment industry, holding 35% of market share for each. The addition of newly-acquired Martabe gold mine business unit is also expected to contribute significantly to its profit next year.
Investment Risks
1) Coal price decline, until well below our projected average price of $95 /ton for Newcastle and HBA this year, or 2) Lower-than-expected Komatsu sales of 4500 – 4550 units, and overburden removal of 970 - 980mn bcm this year.
Komentar
Posting Komentar