We have just published a report on United Tractors (UT). UT’ robust 1Q09 results, stemming from higher ASPs, a weaker IDR and therefore margins –due to inventory gains and a bigger proportion of higher margins in the parts and services division –have beaten our as well as the street’ expectations.
The strong results reaffirm our view that UT’ business is not only resilient, but also offers positive leverage on a weaker IDR. We have therefore upgraded our forecasts by 17-42% over FY09-11E (putting our forecasts 13-23% above the street’), while maintaining our volume assumptions.
Despite the positive share price performance, we believe that the recovery in equipment volumes and strong earnings are likely to be the main catalysts for the company. Low gearing should give UT flexibility for future expansion.
We have increased our sum-of-the-parts-based (SOTP) target price by 24% to Rp11,400 (from Rp9,200), implying 27% upside, a P/E multiple of 11.5x FY10E and 5.8x FY10E EV/EBITDA. We therefore maintain our OUTPERFORM rating on the stock.
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