Indonesia's United Tractors Plagued by Weak Demand for Heavy Equipment
United Tractors, the largest distributor of heavy equipment in Indonesia, is still facing challenges due to persistently weak demand for heavy equipment amid low commodity prices. Business activity in the agribusiness, mining and infrastructure sectors have slowed This context is expected to lead to slowing net profit for the company in both 2015 and 2016. The company, a subsidiary of Astra International (Indonesia's largest diversified conglomerate), controls a market share of around 40 percent in Indonesia's heavy equipment market.
In the first ten months of 2015, United Tractors sold 1,870 heavy equipment units, down 42.2 percent from sales in the same period last year. The sales figure is expected to rise to 2,000 units by the year-end. In 2016, United Tractors projects to sell 1,900 units of heavy equipment. However, this is probably a too ambitious target. The company's machinery products include Komatsu, UD Trucks, Scania, Bomag, Komatsu Forest and Tadano.
Besides slowing sales of heavy equipment, United Tractors has been plagued by weaker coal sales of its subsidiary Pamapersada Nusantara. In the January-October 2015 period, this unit's coal production declined by 4.8 percent (y/y) to 90.1 million tons, while the stripping ratio rose 3.4 percent to 7.3 times. Weaker coal production this year is attributed to bad weather and the global supply glut. Still, the unit's gross margin (the difference between a company's revenue and cost of goods sold divided by revenue) managed to rise to 25.5 percent in Q3-2015, up from 23.5 percent in the same period last year. The growth of gross margin was supported by cost efficiency programs and an improving rupiah rate (versus the US dollar). However, the profit margin is estimated to decline this year as well as in 2016 due to weak coal prices.
United Tractors' price to earnings (P/E) ratio is currently at 9.7 times, the lowest level in a decade due to current negative market conditions. So far this year, shares of United Tractors have fallen 8.9 percent. It is also interesting to note that a relatively large portion of the company's income is US dollar-denominated, implying that United Tractors benefits when the rupiah weakens against the US dollar. So far this year, the rupiah has depreciated 13 percent against the US dollar.
Stock Quote United Tractors - UNTR:
Future Projection United Tractors' Financial Highlights:
| 2013 | 2014 | 2015F | 2016F | 2017F | |
| Net Revenue | 51,012.4 | 53,141.8 | 50,344.0 | 48,952.0 | 51,008.0 |
| Net Income | 4,833.7 | 5,369.6 | 6,111.0 | 5,756.0 | 6,039.0 |
| EBITDA | 10,446.0 | 11,819.0 | 12,729.0 | 12,450.0 | 13,267.0 |
| P/E Ratio (x) | 13.3 | 11.7 | 10.3 | 11.0 | 10.4 |
| PBV (x) | 2.0 | 1.8 | 1.6 | 1.5 | 1.4 |
in billion IDR rupiah unless otherwise stated
Sources: Danareksa Sekuritas