Citigroup United Tractors - Alert: Strong rupiah subdues robust volume growth in 1Q10

United Tractor's (UT) net income grew 12% YoY in 1Q10 to Rp907b (20% of our
2010E forecast and below expectation). This is a tepid growth considering that
revenue grew 25% YoY.

While revenue of Rp33.9t accounts for 26% of our 2010E forecast, margin
declines subdue much of the revenue growth. Gross margins dropped to 18.6%
(1Q09: 23.7%; 4Q09: 21.6%). Strong rupiah (appreciated 20% YoY) was the main
culprit for the margin pressures as the company's revenues are virtually all in
USD.

Outlook
We expect the company to continue logging robust revenue growth for the rest of
the year as mining and plantation companies ramp up their capex spending after
a sharp cut in 2009. UT's mining contracting unit should also see volume pickup
as rainfall subsides.

Continued appreciation of the rupiah however means gross margins would remain
under pressure at least in 2Q10 albeit to lesser extent as rupiah seems to stabilize
at Rp9,000/1US$ level. We expect EBIT margin to stabilize at 15% level in 2Q10
in view of improved operating leverage.

We maintain our Buy rating on the stock as we believe the company would
continue to be the main beneficiary of resources companies' increased capex
spending.