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United Tractors (UNTR IJ. IDR 23,125 BUY. TP: IDR 33,000) - 24 Februari 2021
February 24, 2021 09:35

Lower Komatsu sales in Dec 2020


United Tractors (UNTR) reported seasonally lower monthly Komatsu sales of 83 units in Dec 2020 (-39.0% mom). In 2020, the impact of Covid-19 led to: a) 46.5% yoy lower Komatsu sales of 1,594 units, b) lower coal production (-12.7% yoy) and c) soft gold sales (-22.1% yoy). Nonetheless, coal sales volume grew 9.3% yoy to 9.3mn tons. The operational volumes were within our expectations. BUY maintained with a TP of IDR33,000 (DCF valuation). 

Mixed monthly volumes in Dec 2020.  Komatsu sales reached 83 units in Dec 2020 (-39.0% mom but flat on a yoy basis) with lower sales to the construction, forestry and mining sectors. We believe that the sales were affected by seasonality in Dec 2020. Coal production was flattish at 9.9mn tons with a lower SR at 6.3x in Dec 20 (Nov 20: 6.5x). Meanwhile, coal sales volume went up by 72.6% mom to 1.0mn tons. In 2020, the Covid-19 pandemic led to: a) 46.5% yoy lower Komatsu sales at 1,594 units, b) a decline in coal production (-12.7% yoy) to 114.6mn tons and c) soft gold sales (-22.1% yoy) to 320,000 oz. Meanwhile, coal sales volume jumped by 9.3% yoy to 9.3mn tons with strong coking coal sales volume (+61.6% yoy). 2020’s operational volumes are broadly within our expectations and management estimates. 

4Q20 preview: better coal sales and Komatsu volume to support earnings.  While the coal production declined slightly by 0.3% qoq and gold sales volume dropped by 7.1% qoq, we believe that UNTR will book solid quarterly earnings in 4Q20 given: a) 10.4% qoq higher Komatsu sales volume at 373 units amid a lower contribution from the mining sector of 29.2% in 4Q20 (3Q20: 38.2%) and b) 39.1% qoq higher coal sales volume as well as recovery in coal prices toward the end of 2020. 

2021: Further recovery expected in Komatsu and gold sales. Given expectations of recovery in the construction sector, UNTR expects Komatsu sales volume to grow by 10-15% yoy to around 1,700 units in 2021. We believe that solid coal prices will help to improve Komatsu sales. Nonetheless, UNTR expects the share of big machinery in the product mix for 2021 to remain similar to that in 2020, contributing 7% to Komatsu’s total sales volume. UNTR expects gold sales volume to recover to 350k oz in 2021 (2020: 320k oz). UNTR also foresees flattish coal production at best in 2021, albeit with solid coal prices.  

Maintain BUY with a TP of IDR33,000 (DCF valuation with WACC of 11.3% and LT growth of 3%). We expect UNTR to book better earnings in 2021 from: a) a recovery in coal prices which will have a spillover impact on Komatsu sales volume and mining contracting with expectations of lower discounts and b) higher gold sales volume in 2021. Our TP implies 12.2x 2021F PE. 

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