CIMB United Tractors Result note - Superior margin expansion

(UNTR IJ / UNTR.JK, OUTPERFORM - Maintained, Rp15,000 - Tgt. Rp20,500, Industrial Goods and Services)

We maintain Outperform and unchanged target price Rp20,500 (15x FY11 P/E). 9M09 net profit grew 42% yoy to Rp2.96tr, while core net profit up 34% yoy to Rp2.81tr. This is above our and consensus expectations by 7-10% largely due to lower-than-expected cost and better margins, particularly at Pama due to rapid growth in strip ratio as well as economies of scale. Pama's margins as well as the united tractors' overall consolidated margins are now one of the highest in their history. We are raising FY09 core EPS by 7% from lower cost at Pama. We still see upside in earnings especially into FY10, especially given the current undemanding margin expectations. We believe consensus earnings upgrades are imminent, which would be a catalyst for share price. So, we maintain our Outperform call and our end-2010 target price of Rp20,500 which is based on FY11 P/E.