Indonesia Company Update

27 July 2020 Industrials | Heavy Equipment

United Tractors (UNTR IJ) Buy (Maintained)

Target Price (Return): IDR25,000 (+29%)
TP Rises Due To Higher Gold Prices; BUY
Price: IDR19,450
Market Cap: USD4,966m
Avg Daily Turnover (IDR/USD) 66,582m/4.60m
 Keep BUY, new TP of IDR25,000 from IDR21,700, 29% upside with c.6% Analyst
FY21F yield. We fine-tune our earnings outlook, as higher gold prices
(FY20 ASP: USD1,750/oz; +25% YoY) should offset the drag from United Andrey Wijaya
Tractors’ heavy equipment (HE) sales this year. Its HE market share slipped +6221 5093 9846
to 33% (1H19: 36%) in 1H20. Note that gold accounted for 20% of 1Q20 andrey.wijaya@rhbgroup.com
consolidated pre-tax income. Our TP now reflects 9.3x P/E on FY20-21F
average EPS, at about -1SD from its 10-year forward-rolling P/E band – an
undemanding valuation vs its current P/E being at -1.5SD (c.7x).
 Mining contracting data improved in the short term. In June, Pama
Persada Nusantara’s overburden (OB) removal volume was recorded at
70.4m bcm (+5% MoM, -7% YoY), which took UNTR’s 1H20 OB to 420.4m Share Performance (%)
bcm (-10% YoY). UNTR’s coal output totalled 9.7m tonnes (+9% MoM, -3% YTD 1m 3m 6m 12m
YoY), as its strip ratio for June dipped to 7.3x (Jun 2019: 7.6x). 1H20 coal
Absolute (9.6) 16.3 19.9 (3.7) (27.9)
production amounted to 55.8m tonnes (-8% YoY), with the strip ratio
dropping to 7.5x (1H19: 7.7x). A significant improvement was seen in June’s Relative 9.7 13.9 6.8 14.9 (7.5)
MoM figures, on top of slower YoY negative growth. We expect UNTR to 52-wk Price low/high (IDR) 12,600 – 26,525
maintain its OB until the year-end, as coal miners will keep their costs
capped – albeit with the strip ratio remaining level. United Tractor (UNTR IJ)
Price Close Relative to Jakarta Composite Index (RHS)
 HE sales jumped MoM but market share narrowed. UNTR’s sales of 27,000 102

Komatsu HE totalled 76 units in June (+27% MoM, -59% YoY), taking the 25,000 98

1H20 total to 853 units (-56% YoY). The mining sector is still the biggest 23,000 95

contributor to its YTD HE sales, at 36% (1H19: 47%), followed by 21,000 91

construction (30%, 1H19: 28%). The forestry sector’s portion increased to 19,000 87
21% (1H19: 12%), while sales to the agricultural sector remained flat at 17,000 83
13%. Domestic HE sales increased to 300 units (+70% MoM, -54% YoY), 15,000 80
bringing the 1H20 total to 2,585 units (-51% YoY). UNTR’s June market 13,000 76
share, however, narrowed to 25% (May: 34%). 11,000 72

 June coal sales increased to 573,000 tonnes (+11% MoM, -35% YoY),

May-20
May-20
Jul-19

Mar-20
Mar-20

Jul-20
Oct-19
Oct-19

Feb-20

Apr-20
Apr-20
Aug-19
Aug-19
Sep-19

Nov-19
Nov-19
Dec-19
Dec-19
Jan-20
Jan-20

Jun-20
Jun-20
keeping the 1H20 total coal sales volume robust, at 5.6m tonnes (+14%
Source: Bloomberg
YoY). The increase was boosted by thermal coal volume at 484,000 tonnes
(+28% MoM, -39% YoY), balancing a correction from coking coal’s 89,000 Previous reports on United Tractors:
tonnes (-34% MoM, -31% YoY). Thermal coal sales made up 85% (1H20: Gold Sales Normalise In May; Keep BUY
4.8m tonnes, +12% YoY) of UNTR’s coal sales volume YTD, while coking Coal Sales Remain Robust; Reiterate BUY
coal accounted for the remaining 15% (1H20: 869,000 tonnes, +29% YoY). Weak 1Q20 Results; BUY On Attractive Value
Strong March Coal Sales; Reiterate BUY
 Gold sales volume slightly contracted to 32,000oz (-20% MoM, +10% Mixed February Operational Data; Keep BUY
YoY) in June. This brought the total for 1H20 to 184,000oz (-6% YoY). We FY19 Earnings Beat Expectations, U/G To BUY
believe monthly growth in gold production will remain stable, supported by 10M19: Strong OB, Coal Offset Low HE Sales
potentially higher sales recorded as a result of the spike in the gold spot A Robust 3Q19, But Stay NEUTRAL
price (YTD: c.+26%). This segment remains the main pillar in offsetting the NEUTRAL: 9M19 Operationally Overall In Line
weakness recorded in UNTR’s other businesses, such as construction Indonesia Coal: End of An Era; Sell Now, Buy Later
machinery and coal-mining. Stay NEUTRAL On Soft Operational Results
Jul 2019 Operational Results In Line Overall
 Downside risks are a softening of HE sales, an unprecedented downturn D/G To NEUTRAL Post Lowered Guidance
in coal prices, and a second wave of COVID-19 infections impacting global
coal demand.

Forecasts and Valuation Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F

Total turnover (IDRb) 84,625 84,431 76,769 82,562 84,195
Recurring net profit (IDRb) 11,126 11,312 9,267 10,846 11,431
Recurring net profit growth (%) 50.3 1.7 (18.1) 17.0 5.4
Recurring P/E (x) 6.52 6.41 7.83 6.69 6.35
P/B (x) 1.3 1.2 1.3 1.1 1.0
P/CF (x) 2.32 3.76 3.29 2.07 1.89
Dividend Yield (%) 7.1 6.0 5.5 6.2 6.7
EV/EBITDA (x) 3.13 2.95 3.29 2.79 2.46
Return on average equity (%) 22.4 19.8 15.7 17.6 16.6
Net debtcover
Interest to equity
(x) (%) net11.67
cash 3.2
7.12 1.4
6.23 net cash
7.21 net cash
7.74
Source: Company data, RHB

See important disclosures at the end of this report

1
United Tractors Indonesia Company Update
27 July 2020 Industrials | Heavy Equipment

Financial Exhibits
Asia Financial sum m ary (IDR) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F
Indonesia Recurring EPS 2,982.63 3,032.62 2,484.46 2,907.74 3,064.45
Industrials DPS 1,373.00 1,162.25 1,069.53 1,206.19 1,305.32
United Tractors BVPS 14,417.53 16,170.30 15,542.99 17,452.47 19,373.85
UNTR IJ Return on average equity (%) 22.4 19.8 15.7 17.6 16.6
Buy
Valuation m etrics Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F
Valuation basis Recurring P/E (x) 6.52 6.41 7.83 6.69 6.35
P/E target of 9.3x on FY20-21F EPS average, at -1SD P/B (x) 1.3 1.2 1.3 1.1 1.0
from its 10-year mean FCF Yield (%) 28.8 13.9 22.5 36.8 41.8
Dividend Yield (%) 7.1 6.0 5.5 6.2 6.7
Key drivers
EV/EBITDA (x) 3.13 2.95 3.29 2.79 2.46
i. Increase in coal sales volume; EV/EBIT (x) 4.06 4.46 5.17 4.20 3.65
ii. Increase in coal prices;
iii. Pick-up in coal-mining activities.
iv. Surge in the price of gold. Incom e statem ent (IDRb) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F
Total turnover 84,625 84,431 76,769 82,562 84,195
Key risks Gross profit 21,110 21,231 18,304 20,474 20,950
i. Economic downturn; EBITDA 21,811 25,123 22,143 24,197 24,793
ii. Decrease in coal prices; Depreciation and amortisation (5,041) (8,518) (8,045) (8,099) (8,095)
iii. Increase in oil prices. Operating profit 16,770 16,606 14,098 16,098 16,698
Net interest (673) (1,717) (1,677) (1,408) (1,033)
Company Profile
Pre-tax profit 15,709 15,477 12,831 15,222 16,269
United Tractors distributes and leases construction
Taxation (4,210) (4,342) (3,600) (4,271) (4,523)
machinery including those under the Komatsu, Nissan
Diesel, Scania, Bomag, Valmet, and Tadano brands. Reported net profit 11,126 11,312 9,267 10,846 11,431
The company also provides mining contracting Recurring net profit 11,126 11,312 9,267 10,846 11,431
services, and trades and assembles heavy equipment.
Cash flow (IDRb) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F
Change in w orking capital (4,568) (9,181) (6,041) (1,242) (342)
Cash flow from operations 31,319 19,319 22,060 35,085 38,395
Capex (10,444) (9,243) (5,749) (8,363) (8,077)
Cash flow from investing activities (27,731) (9,758) (5,749) (8,363) (8,077)
Dividends paid (3,639) (4,609) (4,335) (3,990) (4,499)
Cash flow from financing activities 8,638 (4,811) (4,535) (4,190) (4,699)
Cash at beginning of period 20,831 13,438 12,091 13,041 18,297
Net change in cash 12,226 4,750 11,775 22,533 25,619
Ending balance cash 13,438 14,196 13,041 18,297 25,021

Balance sheet (IDRb) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F

Total cash and equivalents 13,438 12,091 13,041 18,297 25,021
Tangible fixed assets 40,474 41,300 39,005 39,268 39,250
Total investments 4,529 3,370 3,370 3,370 3,370
Total assets 116,281 113,819 106,351 114,371 121,971
Short-term debt 7,021 3,479 3,379 3,279 3,179
Total long-term debt 3,286 10,612 10,512 10,412 10,312
Total liabilities 59,230 50,603 45,512 46,305 46,422
Total equity 57,051 63,215 60,839 68,067 75,549
Total liabilities & equity 116,281 113,819 106,351 114,371 121,971

Key m etrics Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F

Revenue grow th (%) 31.1 (0.2) (9.1) 7.5 2.0
Recurrent EPS grow th (%) 50.3 1.7 (18.1) 17.0 5.4
Gross margin (%) 24.9 25.1 23.8 24.8 24.9
Operating EBITDA margin (%) 25.8 29.8 28.8 29.3 29.4
Net profit margin (%) 13.1 13.4 12.1 13.1 13.6
Dividend payout ratio (%) 46.0 38.3 43.0 41.5 42.6
Capex/sales (%) 12.3 10.9 7.5 10.1 9.6
Interest cover (x) 11.7 7.1 6.2 7.2 7.7

Source: Company data, RHB

See important disclosures at the end of this report

2
United Tractors Indonesia Company Update
27 July 2020 Industrials | Heavy Equipment

Figure 1: UNTR’s operational statistics for June, and cumulative 1H20 data
June-19 May-20 June-20 % MoM % YoY 1H19 1H20 % YoY
UNTR's HE sales (Komatsu):
Mining 84 20 26 31% -69% 899 306 -66%
Forestry 24 2 1 -58% -97% 236 182 -23%
Construction 58 25 37 48% -35% 529 253 -52%
Agro 20 13 12 -8% -41% 253 113 -55%
Total 186 60 76 27% -59% 1,917 853 -56%

Contribution per sector

Mining 45% 33% 34% 47% 36%
Forestry 13% 3% 1% 12% 21%
Construction 31% 42% 49% 28% 30%
Agro 11% 22% 16% 13% 13%

Industry sales volume 647 176 300 70% -54% 5,325 2,585 -51%
UNTR's market share 29% 34% 25% 36% 33%

Mining contracting (Pama Persada):

OB removal (m bcm) 75.7 66.9 70.4 5% -7% 469.2 420.4 -10%
Coal production (m tonnes) 10.0 8.9 9.7 9% -3% 60.7 55.8 -8%
Stripping ratio (x) 7.6 7.5 7.3 -3% -4% 7.7 7.5 -3%

Coal-mining:
Coal sales (m tonnes) 0.9 0.5 0.6 11% -35% 4.9 5.6 14%
Newcastle coal prices (USD/tonne) 71.8 51.7 52.2 1% -27% 88.5 61.6 -30%

Gold-mining:
Gold sales (‘000 oz) 29 40 32 -20% 10% 195.0 184.0 -6%
Source: Company data, RHB

Positive outlook from rising of gold price

Our earnings adjustments are mainly based on the increase of UNTR’s gold price ASP
(FY20: USD1,750/oz; 25% YoY). This also eases the negative contraction in gold volume
produced (FY20: 350k oz; -15% YoY), which in turn stemmed from challenges related to
deeper deposits located. In our calculation, an increase of 1% in ASP and gold volume
produced would lift the company’s total EPS by 3.2%, ceteris paribus. A lessened risk from
the COVID-19 pandemic next year should also pave the way for positive coal demand from
FY21 onwards, in our view – the overburden removal volume should increase, along with
the improvement in its coal ASP.

Figure 2: RHB vs Street estimates

RHB (new) RHB (old) Change Street RHB vs Street
(IDRbn) 2020F 2021F 2022F 2020F 2021F 2022F 2020F 2021F 2022F 2020F 2021F 2022F 2020F 2021F 2022F
Revenue 76,769 82,562 84,195 82,111 82,346 80,462 -6.5% 0.3% 4.6% 72,952 77,424 80,330 5.2% 6.6% 4.8%
Gross profit 18,304 20,474 20,950 19,352 19,397 18,879 -5.4% 5.6% 11.0% 17,038 18,446 19,459 7.4% 11.0% 7.7%
Operating profit 14,098 16,098 16,698 15,142 15,032 13,689 -6.9% 7.1% 22.0% 12,494 14,113 15,057 12.8% 14.1% 10.9%
Net profit 9,267 10,846 11,431 9,101 8,949 7,963 1.8% 21.2% 43.5% 8,164 9,557 10,483 13.5% 13.5% 9.0%

Margin
Gross 23.8% 24.8% 24.9% 23.6% 23.6% 23.5% 23.4% 23.8% 24.2%
EBIT 18.4% 19.5% 19.8% 18.4% 18.3% 17.0% 17.1% 18.2% 18.7%
NPM 12.1% 13.1% 13.6% 11.1% 10.9% 9.9% 11.2% 12.3% 13.0%
Source: Company data, RHB

See important disclosures at the end of this report

3
United Tractors Indonesia Company Update
27 July 2020 Industrials | Heavy Equipment

Figure 3: Changes to our key assumptions

RHB (new) RHB (old) Change
2020F 2021F 2022F 2020F 2021F 2022F 2020F 2021F 2022F
Komatsu heavy equipment sales (units) 2,000 2,100 2,300 3,000 3,000 3,000 -33% -30% -24%
OB Removal volume (m bcm) 875 958 1,020 859 859 859 2% 12% 19%
Coal production volume (m tonnes) 118 128 134 123 123 123 -4% 4% 9%
Coal mining - sales volume (m tonnes) 8.0 8.6 9.0 8.7 8.7 8.7 -8% -1% 4%
Coal ASP target (USD/tonne) 67.2 70.6 70.6 78.4 78.4 78.4 -14% -10% -10%
Gold volume (k oz) 350 368 388 400 400 400 -13% -8% -3%
Gold ASP (USD/oz) 1,750 1,838 2,021 1,466 1,466 1,466 19% 25% 38%
Source: Company data, RHB

Figure 4: UNTR’s 10-year average P/E band

(x)
+2SD: 19.9
20.0

17.5 +1SD: 16.4

15.0
Average: 13.0  UNTR is trading near -2SD from its 10-
12.5 year forward-rolling P/E band, implying
-1SD: 9.5 a c.29% upside to its P/E target at -1SD
10.0
(9.3x)
7.5 -2SD: 6.1
5.0
Oct-10

Oct-11

Oct-12

Oct-13

Oct-14

Oct-15

Oct-16

Oct-17

Oct-18

Oct-19
Jan-11
Apr-11

Jan-12
Apr-12

Jan-13
Apr-13

Jan-14
Apr-14

Jan-15
Apr-15

Jan-16
Apr-16

Jan-17
Apr-17

Jan-18
Apr-18

Jan-19
Apr-19

Jan-20
Apr-20
Jul-10

Jul-11

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Jul-18

Jul-19

Jul-20

Rolling PER mean +1stdev +2stdev -1stdev -2stdev

Source: Company data, RHB

Figure 5: UNTR – mining contracting trend

102.8 8.5

92.8 8.0

7.5
82.8
7.0
72.8  OB volume declined, due to the limited
6.5 cost approach from coal players.
62.8
6.0  Stripping ratio was maintained at a
lower pace
52.8 5.5

42.8 5.0
Apr-17

Apr-18

Apr-19

Apr-20
Aug-16

Aug-17

Aug-18

Aug-19
Jun-18
Jun-16

Jun-17

Jun-19

Dec-19

Jun-20
Dec-16

Dec-17

Dec-18
Oct-16

Feb-17

Oct-17

Feb-18

Oct-18

Feb-19

Oct-19

Feb-20

OB removal volume (m bcm; LHS) Monthly Stripping ratio (x; RHS)

Source: Company data, RHB

See important disclosures at the end of this report

4
United Tractors Indonesia Company Update
27 July 2020 Industrials | Heavy Equipment

Figure 6: UNTR’s heavy equipment sales trend

60% 500
55% 445
50% 390
45%
335
40%
280
35%
30%
225  Although UNTR’s monthly HE sales
170 improved in June, its market share
25% declined
20% 115

15% 60
10% 5
Aug-16

Aug-17

Aug-18

Aug-19
Jun-16

Jun-17

Jun-18

Apr-19
Jun-19

Jun-20
Dec-16

Dec-18

Dec-19
Oct-16

Apr-17

Dec-17
Feb-17

Oct-17

Apr-18
Feb-18

Oct-18

Apr-20
Feb-19

Oct-19

Feb-20
Heavy equipment sales (Units; RHS) Market share (%; LHS)
Source: Company data, RHB

Figure 7: UNTR’s coal sales trend

1.50 120

1.25
105

1.00
90
0.75
75  Thermal coal sales volume boosted
0.50 June’s overall coal sales.
60
0.25

0.00 45
Aug-16

Aug-17

Aug-18

Aug-19

Jun-20
Jun-16

Jun-17

Jun-18

Jun-19
Dec-16
Oct-16

Apr-17

Dec-17

Apr-18

Dec-18

Dec-19

Apr-20
Feb-17

Oct-17

Feb-18

Oct-18

Apr-19
Feb-19

Oct-19

Feb-20

Coal sales volume (m tonnes; LHS) Newcastle coal price (USD/tonne; RHS)
Source: Company data, RHB

Figure 8: UNTR’s gold sales trend

Average gold production: 33 k oz/month

1,755
38.5
1,700
1,644
33.0
1,589
1,533
 The gold segment will be the main
27.5 support in mending the weakness from
1,478 UNTR’s other coal-related segments
22.0 1,422
1,367  Demand for coal will gradually pick up in
FY21, in our view
16.5 1,311
1,256
11.0 1,200
Dec-18

Jan-19

Dec-19

Jan-20
Nov-19
Mar-19

Aug-19

Mar-20
May-19

Jun-19

Apr-20

May-20

Jun-20
Apr-19

Sep-19

Oct-19
Jul-19
Feb-19

Feb-20

Gold sales volume (k oz; LHS) Gold spot price (USD/oz; RHS)
Source: Company data, RHB

See important disclosures at the end of this report

5
United Tractors Indonesia Company Update
27 July 2020 Industrials | Heavy Equipment

Recommendation Chart
Date Recommendation Target Price Price
Price Close
2020-03-30 Buy 21,700 14,425
45,000 Recommendations & Target Price
2019-11-26 Neutral 21,700 21,375
na

47,600

32,500

22,700

21,700

21,700
40,000 2019-10-25 Neutral 22,700 21,200
2019-07-31 Buy 32,500 24,925
35,000
2019-01-15 Buy 47,600 25,600
30,000
Source: RHB, Bloomberg
25,000

20,000

15,000
Buy Neutral Sell Trading Buy Take Profit Not Rated
10,000
Jul-15 Nov-16 Feb-18 May-19
Source: RHB, Bloomberg

See important disclosures at the end of this report

6
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7
 While the RHBIB Group will ensure that there are sufficient information barriers and
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Singapore 1. RHBIB does not have a financial interest in the securities or other capital market
This report is issued and distributed in Singapore by RHB Securities Singapore Pte products of the subject company(ies) covered in this report.
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adviser regulated by the Monetary Authority of Singapore. RHB Securities Singapore subject company(ies) covered in this report.
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other foreign research houses pursuant to an arrangement under Regulation 32C of of the subject company(ies) covered in this report
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person who is not an Accredited Investor, Expert Investor or an Institutional Investor, department
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Hong Kong
This report is distributed in Hong Kong by RHB Securities Hong Kong Limited (興業僑 Thailand
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consider reliable, but we do not represent it is accurate or complete, and it should not gift and special cost arrangement e.g. company/issuer-sponsored and paid trip) in
be relied on as such. relation to the production of this report.

United States Indonesia

This report was prepared by RHB and is being distributed solely and directly to “major” Save as disclosed in the following link RHB Research conflict disclosures – July 2020a
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services to U.S. persons. Any order for the purchase or sale of the securities subject company’s securities covered in this report*;
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present certain risks. The securities of non-U.S. issuers may not be registered with, or relation to the production of this report:
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Foreign companies may not be subject to audit and reporting standards and regulatory Indonesia only.
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discussed in this report may not be suitable for all investors. Transactions in foreign
markets may be subject to regulations that differ from or offer less protection than Singapore
those in the United States. Save as disclosed in the following link RHB Research conflict disclosures – July 2020a
and to the best of our knowledge, RHB Securities Singapore Pte Ltd hereby declares
DISCLOSURE OF CONFLICTS OF INTEREST that:
1. RHB Securities Singapore Pte Ltd, its subsidiaries and/or associated companies
RHB Investment Bank Berhad, its subsidiaries (including its regional offices) and do not make a market in any issuer covered in this report.
associated companies, (“RHBIB Group”) form a diversified financial group, 2. RHB Securities Singapore Pte Ltd, its subsidiaries and/or its associated
undertaking various investment banking activities which include, amongst others, companies and its analysts do not have a financial interest (including a
underwriting, securities trading, market making and corporate finance advisory. shareholding of 1% or more) in the issuer covered in this report.
3. RHB Securities, its staff or connected persons do not serve on the board or trustee
As a result of the same, in the ordinary course of its business, any member of the positions of the issuer covered in this report.
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in this research report. relationship that may create a potential conflict of interest.
5. RHB Securities Singapore Pte Ltd, or person associated or connected to it do not
have any interest in the acquisition or disposal of, the securities, specified

8
 securities based derivatives contracts or units in a collective investment scheme
covered in this report.
6. RHB Securities Singapore Pte Ltd and its analysts do not receive any
compensation or benefit in connection with the production of this research report
or recommendation.

Analyst Certification
The analyst(s) who prepared this report, and their associates hereby, certify that:
(1) they do not have any financial interest in the securities or other capital market
products of the subject companies mentioned in this report, except for:

Analyst Company
- -

(2) no part of his or her compensation was, is or will be directly or indirectly related to
the specific recommendations or views expressed in this report.

KUALA LUMPUR JAKARTA

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