UNTR’s slowdown in 2Q19 was attributable to declines in revenues posted by the construction machinery segment, but its business diversification, the mining contracting and the gold mining segments, supported UNTR stability performance in 2Q19. Thus, Its path ahead remains promising.

Inadequate Performance

In 2Q19, UNTR recorded revenues of IDR20.6 trillion (+4% YoY), gross profits of IDR4.9 trillion (+3% YoY), and net profits of IDR2.5 trillion (-14% YoY). Net profits declining sharply was attributable to ballooning finance cost of IDR260 billion (+160% YoY). Sluggish coal industry impacts on the contribution given by the construction machinery segment because 47% of UNTR’s heavy equipment is sold to the coal industry.

Pressures on 2Q19 Performance

The construction machinery segment posted revenues of IDR5.6 trillion (-19% YoY), while Komatsu posted sales of 736 units (-40% YoY). We project that in 2019F UNTR will sell 3,900 units with possible revenues of IDR23.6 trillion; that number dropped by 2% to 26% contributed to UNTR’s overall revenues. The construction industry through ACSET posted revenues of Rp742 billion (-19% YoY) as several projects are on completion progress without any new additional projects. We estimate that in 2019F ACSET will still be able to book revenues of IDR2.9 trillion; that figure dipped by 1% to 3% contributed to UNTR’s total revenues.

PAMA and Agincourt Support 2Q19

The mining contracting segment through PAMA contributed revenues of IDR9.7 trillion (+3% YoY) due to stable coal production. We project that in 2019F coal production will reach 130 million tons, with the OB Removal likely to reach 910 million bcm, driving revenues of IDR48 trillion or a stable contribution of 44% to UNTR’s overall revenues. The gold mining segment through Agincourt contributed revenues of IDR1.7 trillion; it was a positive performance achieved by a new business line despite its declining production volume. We estimate that in 2019F Martabe Gold Mine likely hits production volume to 300,000 oz with revenues of IDR7 trillion; that is a 2% hike to 10% in revenues contributed to UNTR.

BUY Rating with the Price Target of IDR28,000

Business diversification is a key to UNTR’s long-term business stability; accordingly, we maintain BUY recommendation with the price target of IDR28,000 or a 20.8% potential upside based on the estimate of a forward P/E method at 7.7x (-1 SD). UNTR is currently traded at a 2019F P/E of 10.6x.


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