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UNTR - 4Q19 Update

BEWARE OF GLOBAL UNCERTAINTIES

In 2019, UNTR reported a revenue of Rp84.4T, representing 98% of our FY19 estimate, but declined by -0.2% (Y/Y) vs. that of 2018 at Rp84.6T. On the bright side, operating profit reached Rp16.8T, which grew +4.5% (Y/Y) as a result of lower other expenses. Despite higher interest expense, UNTR still managed to book a net profit growth of 1.7% (Y/Y), boosting the figures to Rp11.3T from Rp11.1T.

 

BRACING FOR HEADWINDS

In January 2020, Komatsu sales volume only reached 251 units, plummeting by -46% (Y/Y) from 465 units in the same month last year at 465 units. Surprisingly, sales to forestry sector contributed 32% to overall sales; while mining sector contribution dropped to 31% from 54% in the previous year. This reflects weaker coal price and lower demand have impacted Komatsu sales, and in our view, this bearish coal environment may linger this year. We previously assumed that sales from construction sector will, at least, act as a catalyst; in fact, the construction contribution still stood at 27%, which is better than last year’s 23%. In line with the management guidance, we expect UNTR’s heavy machinery sales to reach 2,950 units this year, but further updates in the next quarter would perhaps give us more colors on how UNTR will fare with the bearish coal environment. 

 

GOLD REMAINS OUR FAVORITE, YET LOWER PRODUCTION THIS YEAR

Gold sales were recorded at Rp7.9T last year, topping our FY19 estimate at Rp6.3T. In addition, we like UNTR’s gold mine due to its thick margin, and once again, it proved its hefty potential with gross margin standing at 45% in FY19. However, the management said that gold production will be lower this year to 360,000 oz – 370,000 oz from 410,000 oz in the wake of lower recovery rate, which is in line with lower gold grade. Yet, amid global uncertainties, we think that gold could still maintain its stellar position this year; thus, it is reasonable to still regard UNTR’s gold mine as the Company’s catalyst this year. 

 

THIS YEAR’S EXPECTATION

In line with the management guidance, we estimate UNTR’s coal-related business to remain flattish if compared with last year’s, weighed down by recent global uncertainties that could further affect coal demand. We expect UNTR’s net profit to grow by +4.8% (Y/Y), as we think finance expenses will be lower this year, but this is still subject to change following the upcoming 1Q20 result.

 

VALUATION

We reiterate our BUY recommendation with unchanged 12-month target price of Rp23,000/share (previous TP: Rp23,000/share) by utilizing Discounted Cash Flow (DCF) method (WACC: 12.2%, LTG: 1.0%). TP reflects 12-month P/E and P/B of 6.5x and 1.1x, respectively. Key risk includes: weakening coal price that may affect all of UNTR’s mining-related business lines.

Mon March 2Th, 2020

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