We are still upbeat despite company’s conservatism
UNTR management attended BAS-ML’s recent three-day Asian Stars Conference in
Singapore. Despite the company’s conservative guidance, the meetings still found us
sufficiently upbeat at the end. We believe that our current earnings forecast have
factored in the worst-case scenario and see room for upgrade should the
economy/coal price recover. Downside potential seems limited to us. Maintain Buy with Price Objective Rp10,000.
Subdued guidance not a concern, in our view
Management reiterated its bleak outlook for the rest of 2009. It sees margin in
heavy equipment business correcting in 2H09, contracts with Noble and Glencore
being repriced down given ongoing delivery delays and low coal price, and net
profit falling 10% YoY (BAS-MLe: flat). To our comfort, this bleak outlook has
been factored into our earnings estimate while management did not factor in
potential gain from forex translation given the strengthening rupiah.
Room for upgrade if coal price recovers
We do not see major downside risk to our earnings forecast at this level. But if
coal price were to recover, we expect heavy equipment sales to pick up,
considering the high correlation between the two.
UNTR looks better off than other coal players in 2010
If coal price stays flat at US$60/t, UNTR should be able to deliver solid earnings
growth in 2010, while the other coal companies are likely to see negative earnings
growth. Given the short life span of heavy equipment, we see a continual and
more sustainable investment cycle in heavy equipment business amid lower coal
price. On 2010E valuation, UNTR looks more attractive than its coal counterparts.
Think infrastructure, think UNTR
In a recent speech, Indonesian President Yudhoyono set out his priorities for the
next cabinet, promising to focus on infrastructure spending, uphold democracy and
eradicate corruption. With cement companies currently trading at around 13.5x 09E
and 11x 10E P/E, we believe UNTR, the only other infrastructure play, offers a deep
value proposition for investors seeking infrastructure exposure in Indonesia.
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