Macquarie United Tractors – Premature profit taking

United Tractors – Premature profit taking

Following the stock’s strong performance of late, last Friday we saw a 10% drop on the share price on the back of heavy equipment sales data for the month of March. Albert Saputro and Adam Worthington (analysts) are not concerned by the data; they maintain estimate and re-iterate Outperform rating, as they see a further 33% upside to PxT of Rp8,400. For FY09 they forecast an EPS of Rp865, 26% above consensus of Rp683.

Our channel checks confirmed that UNTR sold a total of 189 heavy equipment units in March ’09, which includes 26 units of internal sales to Pama. Total units were down 15% MoM, but units excluding internal sales were only down by 6% MoM. In February, UNTR sold 223 units in total including 50 units of internal sales. For March, the internal sales figure for Pama should have reached 50 units based on the purchase order; had it not because of delayed shipments and manufacturing delays. In short, the 1Q09 total units run rate was around 209 units per month, versus Macquarie’s forecasted run rate of 216 units per month for FY09, or a total figure of 2,600 units for the year.

Despite the strong run, the stock still trades on 7.3x FY09 P/E versus a 10-year average forward P/E of 9.0x and a 5-year average P/E of 11.0x. I see UNTR as a mid-term beneficiary of this global crisis, especially on the mining contracting side of the business (45% of gross profit vs. 37% from heavy equipment). Major foreign competitors, Leighton and Thiess, are cutting back staffs at the moment (business development division most affected), while at the same time limiting working capital allocation from HQ. For them, Indonesian business has been more resilient than that of the other countries, but they are reducing single country exposure to avoid bond rating downgrade. Smaller domestic competitors are having financing difficulties at the same time, which is key for importation of heavy equipment in this tight USD environment.