CIMB Company Update – United Tractors – Still a darling

We continue to like UNTR for potential consensus earnings upgrades, particularly from its heavy equipment division which we believe could surprise on the upside in FY10-11. Consensus expectations are not demanding, in our view, and current valuations are not rich, on par with the market. We raise our FY10-11 EPS estimates by 7-11% to factor in higher heavy equipment sales and Pama’s outputs. We also raise our target price to Rp20,500 from Rp16,800, as we roll forward to end-CY10, still based on the market forward P/E of 15x. Recent concerns over a new ministerial decree on contract services are excessive, in our view, as we see only a 3-5% potential revenue loss from this decree. Even then, the impact would only be felt in 2013, if implemented.