(UNTR IJ / UNTR.JK, UNDERPERFORM - Downgraded, Rp5,900 - Tgt. Rp6,200, Industrial Goods and Services)
Strong Jan 09 heavy equipment sales for UNTR could be misleading, as around 50% of the sales were made to Pama, up from the historical average of 15%. Downside risk is high, in our view, given weak commodity prices and financing difficulties. On the other hand, we raise our earnings forecasts for UNTR by 7-16% for FY09-10 to account for higher coal prices. Among its business units, Pama and coal mining are on surer footings but that is largely in the price, we believe, given UNTR's premium to coal stocks. On valuation grounds, we downgrade the stock to UNDERPERFORM from Neutral albeit with a higher DCF-based target price of Rp6,200 (from Rp5,200) following our earnings upgrade.
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