The year of low strip ratio of United Tractors

United Tractors: The year of low strip ratio (UNTR, Rp17,300, Sell, TP:Rp17,000)

Feb’13 Komatsu sales volume of 412 units is within our expectation (2M13 Komatsu sales represent around 16.3% of FY). Interesting point from Feb’13 Komatsu sales compare to Feb’12 is Feb’13 Komatsu sales to all sector decrease yoy. Meanwhile, although demand from construction sector is expected to increase due to infrastructure story in Indonesia, Feb’13 Komatsu sales unit to construction sector decrease mom and yoy.

2M13 PAMA’s OB and coal production are within our expectation. As we expect, year on year growth in Overburden and coal production start to decrease since Feb’13 (Overburden yoy growth: 1M13=10.6%yoy vs 2M13=4.5%yoy. Coal production yoy growth: 1M13=19.0%yoy vs 2M13=12.7%yoy).  Strip ratio decrease to 8.12x in Feb’13 (vs 8.76x in Jan’13 vs 8.79x in Feb’12). Considering unfavorable spread between brent crude oil price (significant cost of mining) and coal price since the beginning 2012 would force PAMA’s clients to reduce their strip ratio, especially if current coal price, which lower than US$90 per ton, is sustainable.

Reiterate SELL recommendation. Although current share price of Rp17,300 almost reach our TP of Rp17,000, we think current slump in coal price to below US$90 per ton would make UNTR price to decrease further.