United Tractors - Maintain OUTPERFORM Target Rp37,500

● United Tractors (UT)’s 1H11 net profit grew 35% YoY to Rp2.54 tn, coming in at 50% of our full-year estimates and 51% of consensus’. 2Q11 profit grew by 30% YoY (+1% QoQ).
● 1H11 revenue grew 42% YoY and was at 52% of our FY11E. 2Q11 revenue also increased 39% YoY and 3% QoQ on stronger heavy equipment sales volume. We increase our 2011E heavy equipment sales volume assumption to 8050 units (from 7645 units), resulting in a 2-5% increase in our 2011-13E earnings.
● In our view, UT warrants its current valuation, as we believe UT will be able to leverage on both higher investment and coal demand from India.
● We increase our sum-of-the-parts based target price to Rp37,500 (from Rp30,000), but maintain our OUTPERFORM rating. We roll over our target price method to 2012E EV/EBITDA. Our target price for UT implies 10.6x 2012E EV/EBITDA.

1H11A earnings came in at 50% of our FY11E. United Tractors (UT)’s 1H11 net profit grew 35% YoY to Rp2.54 tn, coming in at 50% of our FY11E and 51% of consensus’. 2Q11 profit grew by 30% YoY (+1% QoQ).
Increased sales volume assumption due to higher than expected 1H11 volume 1H11 top line performance grew 42% YoY, reaching 52% of our FY11E. 2Q11 revenue also increased 39% YoY and 3% QoQ, mostly on stronger-than-expected heavy equipment sales volume during 1H11, where Komatsu sales volume jumped 59% YoY to 4,333 units, or 57% of FY11E. 2Q11 sales volume was up 40% YoY (-4% QoQ), mainly driven by increase demand in machinery from the mining sector. As a result, the company’s market share in heavy equipment stood at 51% (versus 46% in the previous year). Therefore, we
increase our 2011E heavy equipment sales volume assumption to 8050 units (from 7645 units). As a result, our 2011-13E earnings increase by 2-5%.

Leverage on both higher investment and coal demand from India In our view, UT warrants its current valuation, as we believe it will be able to leverage on both higher investment, as well as coal demand from India. Thus, UT will allow investors to gain exposure and diversify across two of the most attractive stories for Indonesia in the future.

Target price increased to Rp37,500
We increase our SOTP-based target price to Rp37,500 (from Rp30,000), but maintain our OUTPERFORM rating. We roll over our target price method to 2012E EV/EBITDA. Our target price for UT implies 10.6x 2012E EV/EBITDA.

source: CreditSuisse dated 28 July 2011