Date of Report: 30 September 2024
Broker: UOB Kay Hian
Company Overview
United Tractors is involved in the distribution and leasing of construction machinery from brands such as Komatsu, Nissan, and Scania. The company also engages in mining contracting services and coal mining, with a sales volume of 7 million tonnes of coal per year.
Stock Information
- Share Price (as of report date): Rp27,700
- Target Price: Rp20,000
- Upside Potential: -27.8%
- 52-Week High/Low: Rp28,500/Rp20,925
- Bloomberg Ticker: UNTR IJ
- Market Cap: Rp103,324.7 billion (US$6,826.3 million)
- Major Shareholder: Astra International (59.5%)
2024 Outlook
- Coal Price Decline: United Tractors expects coal prices to further decline to US$115/tonne in 2025, continuing a downward trend.
- Komatsu Sales Volume: The company has increased its 2024 sales volume target for Komatsu heavy equipment from 4,250 units to 4,500 units, with big machines accounting for 1,450 units, an increase from the previous 1,100 units.
- Gold Production: United Tractors expects its gold sales volume to increase by 10,000 t.oz per year, following the completion of tailing in 4Q24.
Key Financial Indicators
- 2024 Net Profit After Tax (NPAT): Forecasted to decline by 17.7% YoY
- Expected NPAT Decline in 2025: 1.6%
- Net Profit (2024F): Rp16,972 billion
- Earnings per Share (EPS) (2024F): Rp4,550
- Price-to-Earnings Ratio (PE) (2024F): 5.0x
- Dividend Yield (2024F): 18.1%
Key Business Segments
- Construction Machinery: United Tractors expects to sell 4,500 units of heavy equipment in 2024. While Komatsu sales are forecast to increase, sales of Scania and UD Trucks are projected to decline from 715 to 410 units and 772 to 230 units, respectively.
- Mining Contracting: Overburden removal is expected to rise by 3-4% in 2024, reaching 1.2 billion cubic meters. Coal delivery volume is targeted to increase from 137 million tonnes to 144 million tonnes.
- Coal Mining: Thermal coal production is projected to increase by 6.5% to 7 million tonnes, while coking coal production is expected to grow by 16% to 3 million tonnes.
- Gold Mining: The company expects to produce 235,000 t.oz of gold in 2024, with the Martabe mine contributing 210,000 t.oz and the Sumbawa Juta Raya mine providing 25,000 t.oz.
- Power Generation: United Tractors owns a 25% stake in the Tanjung Jati power plant, which is expected to contribute Rp200-400 billion annually.
Coal and Energy Outlook
- Lower Coal Prices: United Tractors expects coal prices to average US$125/tonne in 2024 and fall further to US$115/tonne in 2025, creating a challenging environment for the company’s profitability.
- Nickel and Geothermal Investments: United Tractors plans to develop its Rotary Klin Electric Furnace (RKEF) facility for nickel production. The company also acquired a 51.09% stake in Supreme Energy Rantau Dadap, which is expected to double geothermal capacity from 98 MW to 220 MW.
Key Financial Metrics
- 2024 Net Debt/Share: Rp2,794
- 2024 EBITDA: Rp31,743 billion
- 2024 EV/EBITDA: 3.2x
- ROE (2024F): 21.3%
- Net Margin (2024F): 13.0%
Stock Impact and Strategic Focus
- Power Plant Contribution: United Tractors’ coal-fired power plant is expected to contribute Rp200-400 billion annually.
- Focus on Profitable Projects: After years of losses in its construction division, United Tractors aims to focus on more profitable projects in 2024.
- Nickel and Power Sector Investments: The company is focused on expanding its nickel production through its Stargate mine and enhancing geothermal capacity through investments in power plants.
Valuation and Recommendation
- Target Price: Rp20,000, pegged to a five-year -2SD PE of 4.4x 2025F PE.
- Valuation Concern: Due to the expected decline in coal prices, the company’s 2024 NPAT growth may face downside risk. In 2019, pre-pandemic coal prices averaged US$79/tonne, suggesting further potential price reductions.
- Earnings Risk: No immediate changes in forecasts; however, the 1% increase in Komatsu sales will have a limited impact on the overall NPAT forecast. The company will reassess following 3Q24 results.
Conclusion
United Tractors is facing ongoing challenges due to declining coal prices, which are expected to continue through 2025. However, the company remains optimistic about increasing its sales of heavy machinery and gold production, as well as expanding its investments in nickel and geothermal energy. With a focus on more profitable projects and diversification, United Tractors aims to mitigate the risks posed by lower coal prices.
