Mining contracting ASPs could
surprise in FY09; upgrade to OW
• What is changing?
We think that better tariff terms on recent contract
renewals and higher-than-expected stripping ratios at UNTR’s
mining
contracting business could lead to ASPs surprising on the upside
in
FY09. This could have a significant earnings impact, along with
the
benefits from a weaker rupiah. If this thesis proves correct, we
think that
UNTR may report earnings that are 15-25% higher than consensus
forecasts and generate 18% core EPS growth in FY09E. We expect
better earnings from mining contracting to start showing up by
1Q09
results and upgrade the stock to OW and add it to our Asian
Analysts’
Focus List.
• Potential stock outperformance
drivers: We see the following
potential catalysts to our PT: 1) upward revision of margin
expectations
after 1Q09 results; 2) gradual recovery in monthly Komatsu sales
in the
latter part of the year; 3) earnings growth in a year when market
earnings
are likely to be lackluster; and 4) UNTR has outperformed in
periods of
declining interest rates in the past, and we see more downside
potential
to rates.
• Expectations on equipment sales now
modest, inventories declining:
Equipment inventories, which built up to over 1,000 units
(five-month
sales) in 4Q08 are now starting to ease down to 800 units or so.
We
believe that expectations on equipment sales have already
moderated
rapidly. Interestingly, we forecast pure equipment sales to
comprise only
about 25% of FY09E revenues suggesting that weak volume reports
may
be buying opportunities.
• Rp7,600 PT: We upgrade UNTR to OW
(from Neutral) with a Rp7,600
Dec-09, DCF-based PT (was Rp5,000). Our PT assumes UNTR trades
at
9x FY09E EPS by Dec-09, which looks justifiable historically.
Poor
demand and possible credit issues among clients are risks to our
PT.
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