AAA Securities United Tractors Shifts to the low gear

United Tractors Shifts to the low gear

± Strong environment for all business units in 2008
± Heavy equipment to post lower revenue this year
± New contribution from TTA in 2009
± Lowering target price, maintain buy

During 2008 period, United Tractors posted a significant improvement on its financial performance backed by robust environment on its all business units.
The company ended 2008 with 78.1% increase on bottom line to Rp2.7 tr as compared to 2007 net profit of Rp1.5 tr. Such increase was backed by higher revenue from heavy equipment, mining contracting and mining. UNTR sold 4,345 units of heavy equipment, 26% higher YoY from 3,454 units a year earlier, thus UT managed to post Rp12.4 tr of revenue from its heavy equipment unit.

Bullish commodities prices in 2008, in particular coal, boost UT’s Pama Persada to post 48% higher revenue to Rp11.6 tr against Rp7.8 tr in 2007. UT’s new business units, coal mining, managed to post two fold increases on revenue to Rp3.9 tr on the back of stronger coal price. Given its solid and strong performance in 2008, UT managed to post higher profitability with operating margin increased to 14.9% compared to 13.2% in 2007. Moreover, despite the company increased its equity through right issue last year, UT posted a higher ROE of 31.6% in 2008 compared to 28.9% a year earlier.

We have revised our forecast on UNTR and lowered our target price from Rp8,500 to Rp 6,800. With 21.4% upside from current market price, we still maintain our buy recommendation.