Weak January operating performance is worsened by the unfavourably heavy rains
United Tractors. January operating performance continued to sustain its weakness since 4Q08, due to the 1) tight financial availability (especially in US$-term), 2) falling commodity prices, and 3) unfavourable heavy rain in its mining areas.
Its heavy equipment sales volume dropped 56% YoY to 216 units, but showed a decent improvement from a depressed volume during 4Q08. Coal mining sector experienced the least drop, with only down 10% YoY vs. the remaining of 75%-99% YoY.
The heavy rains in Kalimantan areas also adversely impact UT.s both mining contracting and mining divisions. Despite the positive growth still in the mining contracting business (+4% on coal and 18% for overburden, thanks to the higher stripping ratio), these performance was below its internal target. The coal sales volume got hit the hardest, dropping 44% YoY to only 0.2m tonnes.
Given the above, we do see some downside risk in our earnings forecast, but we still like the company.s qualities given 1) its brands, 2) management, and 3) balance sheet flexibility
United Tractors (UNTR.JK, Rp5750.00, OUTPERFORM [V], TP Rp7900.00)
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