Mandiri Sekuritas UNTR Window of opportunity

Window of opportunity

United Tractors (UNTR) indicated Mar09 sales were only 189 units (-15.2% mom), but not to worry as it is only due to delivery delay to Pamapersada (Pama). We also believe that market reaction on news of potential implementation of heavy equipment retribution tax is not justified, since it has been mulled since late 2000 and it does not look that it will implemented anytime soon. Thus, such knee-jerk would provide a window of opportunity to buy the stock. We reiterate our Buy recommendation and maintain the Rp7,800/share target price.

Mar09 unit sales drop of 15.2%mom is not cause for alarm. Indicative unit sales for Mar09 were 189 (-15.2% mom or -39.0% yoy). A delay in heavy equipment delivery to Pama was the main culprit for the drop. The company targeted to deliver about 50 units to Pama, but only 26 units were completed. We expect Apr09 unit sales to pick up, boosted by the arrival of the delayed delivery. It is important to note that sales to third parties still within our estimates. Annualizing current third party sales added with 300 units for Pama we arrive at 2,312 units, which is in line with our estimates of 2,239 units.

Sell-off, based on retribution tax news, is not justified. We believe that the recent market reaction on news of retribution tax implementation on heavy equipment is not justified. The Law no. 34/2000 that allows local governments to apply retribution tax on heavy equipment was endorsed in 2000 and yet there has not been any clear direction on how it would be implemented. Retribution tax, by interpretation, is solely subjected to equipmen t/vehicle that uses public facilities. Meanwhile, heavy equipment are used on the mining sites which are not public facilities. This has become a bone of contention between the local government and heavy equipment owners. We believe that this issue will not be resolved in the near term and we would see series tug of war between the two sides. Should the implementation be done, tax to be paid is as follows: a) maximum 5% of annual ownership tax and b) 10% on change of ownership, if any.

Reiterate Buy on window of opportunity. We reiterated our Buy recommendation on the UNTR. As UNTR’s stock price has been showing strong appreciation since beginning Mar09, we believe the strong fallback in price gives an opportunity to buy for those who have missed the previous stock rally. We maintain our DCF-based (WACC 14.9%, terminal growth 5%) target price of Rp7,800/share, implying a tar get PER09F of 9.5x. We also adjusted our numbers due to the change in the US$/Rp assumption. At the current price, the company is trading at PER09F of 7.7x.