All Road Leads to UNTR
Guest post by Jeffry Shandy
Disclaimer: Any mention stock is not an invitation or recommendation to buy or sell or hold. It is purely for educational purposes and we hope that readers would be more knowledgeable about a giant mining company in Indonesia after reading this post.
Intro to UNTR
What comes to your mind when you hear the name PT United Tractors Tbk (UNTR)?
Even if you have never invested in Indonesian companies before the word “Tractor” might lead you to think that this company sells Tractors!! (which is not wrong)
For those who are more familiar with Indonesian stocks, you might know these facts about UNTR:
Yes! The branding of UNTR indeed revolves around those three things. For more than 50 years, PT United Tractors Tbk (UNTR) has been the sole distributor of Komatsu heavy equipment in Indonesia. From this distribution business, UNTR then formed a Mining Contractor business unit run through their subsidiary, PT Pamapersada Nusantara (PAMA), which later became the largest mining contractor in Indonesia.
Although UNTR is well-known as a pick & shovel company in the mining industry, there is something interesting if we look at UNTR's revenue composition in the last two years!
Side note: a "pick & shovel" company refers to a business that provides tools, services, or essential infrastructure to support a larger industry.
UNTR’s business
UNTR groups its business segments into 6 parts:
If you don’t know, UNTR is also owned by PT Astra International Tbk (ASII). Therefore, it is appropriate to refer UNTR as the subholding of ASII in the mining business.
In 2023, UNTR recorded a revenue of IDR 128.6 trillion. If we break it all down, this was contributed by three main segments:
UNTR's revenue from the coal mining segment has risen significantly in recent years, mainly due to the increase in coal selling prices, especially in 2022-2023. This points to the importance of the coal mining business segment.
UNTR's revenue from the coal mining segment (IDR 30.5 trillion) is catching up with the revenue from the construction machinery segment (IDR 36.6 trillion) , which is UNTR's "original" business.
So is UNTR now a coal mining company?
If we investigate the history, UNTR is not actually a newcomer in the coal business.
In 1989, UNTR already owned a coal mine through the acquisition of a 60% stake in PT Berau Coal (which is now owned by PT Berau Coal Energy Tbk (BRAU), a part of the Sinar Mas Group).
15 years later, on July 29 2004, UNTR decided to divest PT Berau Coal to PT Armadian Tritunggal for a sale price of IDR 407 billion. The proceeds from the divestment were used to partially repay UNTR's debt at the time.
But just 3 years later, on April 30, 2007, UNTR re-entered the coal mining business by acquiring the coal mine PT Dasa Eka Jasatama through PT Pamapersada Nusantara (PAMA).
And a year later, UNTR acquired PT Tuah Turangga Agung. Six years later, PT Tuah Turangga Agung became the "parent" of UNTR's coal mining assets.
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The growing size of UNTR's coal mining business makes it interesting to compare with other coal companies. How large is UNTR's coal mining segment, actually?
To answer this, let's compare it with PT Bukit Asam Tbk (PTBA), PT Indo Tambangraya Megah Tbk (ITMG), and PT Golden Energy Mines (GEMS), which are known as "pure" coal mining companies.
Sales Volume & Revenue
In terms of sales volume, UNTR lags behind the other three companies. A sales volume of 11.8 million tons in 2023 is considered "mini" when compared to GEMS, which recorded a coal sales volume of 46.8 million tons in the same year.
Similarly, in terms of revenue, UNTR also lags behind PTBA, GEMS, and ITMG. In 2023, the revenues were as follows: GEMS (IDR 44.8 trillion), PTBA (IDR 38 trillion), ITMG (IDR 36.5 trillion), and finally, UNTR (IDR 30.5 trillion).
However, total revenue is not the sole measure of profitability. What is most important is how much of that revenue becomes net profit.
This should be obvious to everyone: if I earn USD 100 million in revenue from selling iPhone, it does not mean anything if my cost is at USD 120 million. My sales is huge, but I am incurring losses.
Unfortunately, the net profit from the coal segment is not explicitly stated in UNTR’s financial statement. However, a clever way to estimate it is to look at profit before tax, then subtract the applicable tax rate of 22%.
In 2023, UNTR's total net profit for the coal segment was IDR 7.5 trillion, which is higher than PTBA's net profit of IDR 6.1 trillion. UNTR's net profit is even almost comparable to the net profit of ITMG and GEMS, who are "pure" coal mining companies.
So yes, UNTR's coal mining business is pretty darn significant and is comparable to other "pure" coal mining companies.
And guess who is the mining contractor for coal excavation for PTBA, ITMG, and several other coal mining companies?
If we look at the "supplier" for PTBA and ITMG in mining services, we will find the name PT Pamapersada Nusantara, which is essentially UNTR!
The synergy between UNTR's construction machinery business, mining contractor services, and coal mining operations makes it not just a pick & shovel company, but an integrated mining company worth considering.
However, this does not mean we recommend you to invest in UNTR, as this article only discusses a small portion of UNTR (recall that the coal mining segment’s contribution to UNTR’s revenue is 24%) and should not be used as a basis for buying or selling decisions.
The takeaway
From this UNTR case study, we want to offer a new perspective, that is, that the branding carried by a company can be just a small part of its overall business. Who would have thought that the profit generated from UNTR's coal segment (from a company that is supposedly selling tractors) could be larger than the "pure" coal companies we all know?
Therefore, it is essential to conduct your own in-depth analysis of a company rather than just following the trend. Always do your own research!
Closing Remarks (from Toby)
Hopefully you folks would have learned something from Jeffry (from KelaSaham) in this post. He’s starting out his educational investment class alongside with Leo. Go check their stuff out if you fancy in learning more about investing and Indonesian companies at large.
And no, we don’t get paid by them to have this post up at Recompound blog. I just think that they are genuinely adding value to the investment community. Cheers!