Danareksa United Tractors (UNTR IJ, Rp19,200 HOLD) On track but expensive

Highlights:
· Sales of UNTR’s Komatsu heavy equipment surged 157% yoy in March to 485 units. Sales to the mining sector (56%) and to the agro/plantations sector (23%) accounted for the bulk of sales. In terms of sales growth, however, sales to the logging and agro sectors showed the largest increases, with 1Q10 sales up by 364% and 284%, respectively, to 102 and 269 units.

· Pama’s coal production was steady in March at around the previous month’s level of 6.3 Mt. Overburden volume, however, saw a slight 2% MoM increase to 54.4 Mbcm. On a yearly basis, coal production and overburden volume in 1Q10 were 27% higher than in the corresponding period of 2009.

· DEJ’s coal sales rose further. They climbed 4% MoM to 261 Kt in March 10. As a result, DEJ’s coal sales rose 8% yoy in 1Q10 to 744 Kt (19% of our FY10 forecast).

Comments:
· Komatsu’s robust sales growth has come on the back of higher levels of coal production (as indicated by Pama’s 27% yoy higher coal production) and the booming plantations industry. Both these sectors are very prospective with firm demand for both coal and CPO. As a result of Komatsu’s excellent March sales, the 1Q10 sales are already 33% of our full year forecast of 3,700 units. However, it should be noted that the most productive months of the year for coal and plantation companies is in the period from April to August. Hence, sales of heavy equipment in the months toward the end of the year are generally weaker. As such, we believe our 10F sales figure for Komatsu heavy equipment is not too conservative.

· Pama’s biggest mining sites (such as Adaro’s) have enjoyed fine weather. This explains how Pama managed to step up its annual volume of work in 1Q10 while other mining contractors experienced lower production and lower overburden volume (Buma’s coal production fell to 7.7 Mt in 1Q10 from 7.9 Mt in 1Q09 whilst its overburden volume declined to 62.9 Mbcm in 1Q10 from 63.6 Mbcm in 1Q09). We therefore remain confident that our forecasts for Pama’s 2010F coal production of 76 Mt and overburden volume of 686.7 Mbcm can be achieved.

· We expect DEJ to deliver more coal in the coming months since expected better weather will allow for more shipments. This should mean that our forecast for DEJ’s 2010F coal sales of 3,850 Kt can be attained.

· Valuation wise, UNTR’s shares currently trade at PE 10F/11F of 14.8/13.3x. From the current share price there is only 9% upside to our TP of Rp21,000. As such we believe that HEXA is a better investment in this sector (it trades at consensus PE 10F/11F of 11.2/10.2x ). Maintain Hold on UNTR.