Lagging behind
Low heavy equipment sales
UNTR’s heavy equipment sales reached 223 units in Feb 09. Thus, its heavy equipment sales now stand at 439 units YTD, or only 14.6% of our full year forecast of 3,000 units. The lower-than-expected sales numbers naturally raise some concerns (especially since most of the sales are made to the mining sector with Pama accounting for around a 23% share), but we remain hopeful that higher sales of higher-margin spare parts and an increase in service income will buffer the lower equipment sales to a certain extent.
Bad weather hits coal production
Hit by bad weather, Pama’s coal production reached only 4.6 mn tons in Feb 09. As such, the YTD coal production now stands at just 9.4 mn tons, or only 14.2% of our full year forecast of 65.9mn tons. Yet historical data suggests that the company can make up the weak production in the rest of the year. Note that Pama’s coal production in the first two months of 2007 only turned out to be 13% of the full year production since Pama was able to boost production levels in the second half of the year. As such, we remain hopeful that Pama can show a similar improvement in performance, and therefore decide to maintain our forecasts.
DEJ sales are still low, but improving
The poor weather is also affecting DEJ’s production. As a result, its YTD coal sales are only 437,000 tons, or only 10.9% of our full year forecast of 4mn tons. Even so, some encouragement is provided by the Feb 09 sales which rose 17% mom to 236,000 tons in addition to the fact that DEJ has contracts to sell about 3.6mn tons of coal per year to its clients. As such, we remain optimistic that DEJ will be able to step up its production and boost its sales.
Maintain BUY recommendation
We maintain our BUY recommendation on UNTR given its strong business model, strong brands, and good market presence. Furthermore, the stock offers a 09-10F ROE of 21.3%-19.3%, and it currently trades at a PE 09-10F of 7.4-7.0x, which is low on a historical basis.
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