FY12 sales volume forecast lowered to 9,000 units
Sales of Komatsu rebounded 3% mom to 773 units in May 2012. By sector, the mining accounted for 62% of the total sales volume, followed by the agro (18%), the construction (13%) and the forestry (7%). Komatsu's market share, however, was lower than in 2011 (45% in 5M12 vs 49% in FY11). This owed to the fierce competition in the heavy equipment industry, especially the 20-ton class excavator segment (40% of heavy equipment sales volume and 20% of heavy equipment sales value). On account of this stiff competition, we trim our FY12-13 sales volume forecasts by 5.3-9.6% to 9,000-9,450 units. We feel more comfortable with these numbers, especially since the highest monthly sales so far this year is the 821 units recorded in March. Moreover, the sales volume in the last month of the year, December, is typically low. At the same time, we also foresee lower margins as UT battles the competition through its promotional and financing schemes, although a larger contribution from after-sales services should help support its margins.
Pama Production strong and expected to be higher in 2H
Pama's mining activities were strong in May, supported by better weather and a stable stripping ratio of 9.2x. Coal production and overburden removal in 5M12 were up by 14.7% and 16.2% yoy, respectively, at 37.4mn tons and 343.1mn bcm (+6% mom and +6% mom, respectively, for May). These figures are in line with our full year estimates of 96mn tons and 887mn bcm, given that 2H production is typically higher than 1H production.
Strong May coal sales volume of 650k tons (+53% mom, +75% yoy)
Coal sales volume surged 53% mom to 650k tons in May 2012, supported by the better weather (at the PNM and TTA coal mines only). YTD sales reached 2.6mn tons (+45.4% yoy), or 40% of our full year forecast of 6.5mn tons. Note that PNM's production surged 156.4% mom in May as UT renewed the contract last month adopting 100% index based pricing. Going forward, we expect a larger contribution from the new coal mines - with production expected to start mid-2012 - to boost the company's coal mining activities.
Maintain BUY, lower TP of Rp 27,300
UNTR's share price has fallen 21% over the past month. Besides the market correction this also reflects weaker sales volume in April and lower market share due to an influx of Chinese-made small-medium sized equipment exacerbated by the tough competition posed by the Hitachi and Kobelco brands. We lower our TP to Rp 27,300, as we reduce our Komatsu sales volume forecast and our long term growth rate to 2% to reflect the stiffer competition and regulatory risk whilst also adjusting for higher COGS in the coal mining division. Our new TP implies FY12-13F PE of 16.6-14.5x and FY12-13F EV/EBITDA of 8.3-7.4x. We believe our valuation is justified by the improving sales volume, upside potential for Pama's production, in addition to growing coal sales volume despite the softening coal prices which are already priced into our model. Currently the shares trade at FY12 PE of 12.9x, or similar to the market valuation. For the stock to reach our TP, the share price must be supported by positive market sentiment.
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