United Tractors (UNTR IJ)

Lifting Our FY24-26F Forecast and TP Post 1H24 Beat; Upgrade Rating to Buy

 

  • 1H24 earnings beat demonstrated Pama and UT’s coal business superior operational performance
  • We raised our FY24-26F est. by 13-22% and SOTP-based TP to Rp29,200 on the better operational and coal price outlook
  • We upgrade our rating to Buy on prospect of earnings upside in 2H24.

 

Pama and own coal mine’s strong production drove 1H24 beat

UNTR’s 1H24 net profit of Rp9.5tr (-15% yoy) was a beat, forming 55% of BRIDS and cons. FY24F est., driven by a 2Q24 +10% qoq (-15% yoy) net profit growth. Key drivers of the strong 1H24 earnings were: 1) Revenue beat from mining contracting on stronger-than-expected volume (+15% yoy vs. forecast of +10% yoy), combined with possible margin support from weaker IDR and lower unit cost due to the better volumes. This was made possible by the strong delivery from Pama in 2Q24 of 304mn bcm/ 37Mt OB/ coal volume (+6/ 15% qoq, +10/ 15% yoy), outperforming 2Q24 national production (-4% yoy) which suffered from the higher rainfall. 2) Stronger-than-expected 1H24 sales volumes of coal mining of 5.8Mt (70% of FY24F), with 2Q24 also showing a healthy +14.9% qoq/ +14.9% yoy production growth, and strong gold price in 1H24.

 

FY24-26F net profit est. uplift on better operational and coal price outlook

We raise our FY24-26F net profit estimates by 13-22% mainly to reflect our more optimistic assumptions on Pama and own coal mine’s production, as well as including UNTR’s nickel mine into our forecast. We have also lifted our FY24-26F blended coal ASP to US$ 119/88/88 per tonne, aligned with our latest view on coal price. Consequently, we also raised our SOTP-based TP to Rp29,200 (from Rp24,900 prev.).

 

Upgrade rating to Buy on potential earnings upside in 2H24

We upgrade our rating to Buy (from Hold prev.). Although we forecast UNTR’s earnings to be in a downcycle (historically capping share price performance during such periods), we believe the current share price overlooks potential earnings upside in 2H24. Additionally, the current 2.7x EV/EBITDA offers value. Key risks to our view: 1) Pama and coal mine production risk if La Nina occurs in 3Q24. 2) Re-emergence of plans to acquire more nickel assets, as this was previously lacking strategic clarity.

 

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