United Tractors (UNTR IJ)

Raising FY24-26F est. post 3Q24 earnings beat; reiterate Buy on bottoming earnings, strong FCF

• UNTR posted robust 3Q24 net profit (+47% yoy/ +22% qoq), driving 9M24 beat, on strong performances of Pama and heavy equipment.
• We raise our FY24-26F net profit est. by 9-15%, taking into consideration expectation of stronger performance from Pama and heavy equipment.
• We reiterate Buy rating on the prospect of bottoming earnings and steady FCF generation, with a higher TP of Rp31k.

Solid 3Q24, supported by robust Pama and above-expected equipment sales

UNTR posted 3Q24 net profit of Rp6.1tr (+22% qoq/ +47% yoy), which brought 9M24 net profit to Rp15.6tr (+2% yoy; 80%/ 86% of BRIDS/ Cons FY24F- beat). The strong results were supported by 9M24 EBIT of Rp20.9tr (-2% yoy; 78%/ 82% of BRIDS/ Cons FY24F- beat), owing to: 1) strong 3Q24 revenue growth from mining contracting, supported by +2% qoq/ +9% yoy total unit (OB+ Coal) growth; 9M24 total unit formed 72% of our FY24F. 2) Above-expected revenue growth from heavy equipment (+36% qoq/ +29% yoy), on the back of stronger-than-expected Komatsu sales of 1,174 units (+15% qoq/ -4%  yoy); 9M24 total unit of 3,321 (87% of our FY24F). 3) Higher production contribution from gold and nickel has offset lower revenue from coal mining, which fell -22% qoq in 3Q24 (9M24 revenue came in below our estimate at 70% of FY24F), reflecting lower 3Q24 volume (-26% qoq), likely due to delays in coal transportation.

Raising our FY24-26F est. by 9-15%

We raise our FY24-26F net profit estimate by 9-15%, as we take into consideration the following assumptions: 1) Komatsu sales of 4,480 units in FY24 (vs. 4,100 previously), reflecting -15% yoy and growth assumption of 5% in FY25 and 26F. 2) Unchanged production volumes for Pama (FY24F Coal/ OB of 146Mt/ 1.29bn bcm, +12% yoy), but higher gross margin of 15-17% (vs. our prev. assumptions of 14-15%). 3) Coal mine FY24 sales volume of 12.9Mt (vs. 12.5Mt prev.) and 5% growth in FY25F.

Reiterate Buy rating with a higher SOTP-based TP of Rp31k

We lift our SOTP-based TP to Rp31k to reflect our revised FY24-26F EPS est. Based on our revised numbers, we expect UNTR net profit to see a slight growth of +3% yoy in FY24F and expect a flattish profit in FY25F. We reiterate our Buy rating on combination of strong earnings and free cash flow generation, at attractive valuation of 2.8x EV/ EBITDA (at its 5-year mean). Key risks are: 1) weaker coal price. 2) Pama production disruptions.

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