Mandiri Sekuritas Key takeaways from our visit (UNTR, Rp5,000, Buy, TP: Rp7,800)

Here are some key takeaways from our visit to United Tractors (UNTR), yesterday:
1. Komatsu Japan allows UNTR to return some of its heavy equipment inventory at cost. This will help company’s working capital management.
2. Company renewed its contract with Kideco for ten years in Jan09. For FY09F, contract for mining contractors is secure as next contract expiry would be in 2010F on which amounting to 5.2mn tons of coal (about 8.8% of FY08 total production).
3. UNTR indicated that Feb09 coal extraction and coal production would be poor as weather remains unfriendly. However, management is still optimistic to catch up their annual target in second and third quarter.

Now trading at PER09F of 6.3x, we remain a buyer for UNTR as mining contracting would show steady performance with support of higher fee as stripping ratio to remain at 7.5x. Key risks to our valuation remain on unfriendly weather, price war among heavy equipment sellers, and coal price drops below cost of production (cash cost of
UNTR clients is US$35-40/ton on average).