DBS United Tractors: Buy; Rp19,700; TP Rp20,750; UNTR IJ

Be prepared for acquisition-led growth

United Tractors (UT) set aside US$100m to expand its coal production by acquiring more coal asset. The company will use US$50m from the rights issue proceeds to finance the acquisition while the remaining US$50m from either internal cash or bank loan. Recently, UT completed the acquisition of 60% stake in Agung Bara Prima for US$15.9m. Agung Bara has 10m tons of coal reserve located in Central Kalimantan. We believe that given its healthy balance sheet position and strong cash flow going forward, UT will continue to increase its coal reserve by acquiring more coal assets near its coal concession area. Maintain our Buy call for UT with TP of Rp20,750/share. We expect strong heavy equipment sales and further acquisition announcement to be the next catalyst of the stock.