2015 Macquarie UnitedTractors-PamaStillPoweringOn20150303

INDONESIA
United Tractors
UNTR IJ Underperform
Price (at 07:45, 03 Mar 2015 GMT) Rp22,225 Pama still powering on
Valuation Rp 20,000 Event
- Sum of Parts
12-month target Rp 19,000  Late last week, UNTR delivered a material 4Q14A earnings beat, which was
Upside/Downside % -14.5 again driven by another period of exceptionally strong reported
12-month TSR % -11.1 profitability/margins by UNTR’s mining contracting subsidiary Pama.
Volatility Index Low/Medium Meanwhile, heavy equipment performance remained subdued.
GICS sector Capital Goods
 We continue to believe Pama to be materially over-earning, and that 4Q14A
Market cap Rpbn 82,899
Market cap US$m 6,400
margins – at more than double their long-term average in 4Q14A – will almost
Free float % 20 certainly prove unsustainable long term, and reflect aggressive cost-cutting,
30-day avg turnover US$m 5.0 as well as some cost deferrals, which have occurred ahead of upcoming
Number shares on issue m 3,730 contract rate reductions. However, we do acknowledge that the company
appears to be having more success in implementing cost efficiency measures
Investment fundamentals
Year end 31 Dec 2014A 2015E 2016E 2017E
than we had anticipated. We raise our FY15E earnings by 10.9% and PT to
Revenue bn 53,142 55,764 60,525 68,179 Rp19.0k (from Rp16.5k), but believe the stock remains expensive and risky at
EBIT bn 8,866 7,053 7,015 7,725 a c20x normalised PER and at 3.5x EV/tangible capital deployed (excluding
EBIT growth % 31.5 -20.5 -0.5 10.1
Reported profit bn 5,370 5,475 5,527 6,158
mining concessions). We maintain our Underperform call.
Adjusted profit bn 6,757 5,475 5,527 6,158
EPS rep Rp 1,440 1,468 1,482 1,651 Impact
EPS rep growth % 11.1 2.0 1.0 11.4
EPS adj Rp 1,811 1,468 1,482 1,651  After a sharp increase from high-teen levels to c25% in 1Q–3Q14A, Pama’s
EPS adj growth % 35.6 -19.0 1.0 11.4
PER rep x 15.4 15.1 15.0 13.5
4Q14A gross margins surged further still to a record 34.5% in 4Q14A, to
PER adj x 12.3 15.1 15.0 13.5 levels approximately twice the company’s long term average. Volumes –
Total DPS Rp 815 734 815 991
Total div yield % 3.7 3.3 3.7 4.5
which were down 2.9% YoY in 4Q14A – were again not the driver, but rather
ROA % 15.1 11.6 11.4 12.0 Pama having implemented aggressive cost reductions and efficiency
ROE % 19.3 14.5 13.8 14.4
EV/EBITDA x 5.8 6.9 6.8 6.3
measures, while also continuing to benefit from the under-depreciation of its
Net debt/equity % -17.2 -17.9 -22.0 -23.7 fleet (37% not being depreciated at present), whereas appreciable contract
P/BV x 2.3 2.1 2.0 1.9
rate reductions do not yet appear to have come into effect (in 4Q14A).
UNTR IJ rel JSX performance, & rec
 An unresolved question is to what extent these cost savings are sustainable.
history
For FY14A overall (quarterlies not available), USD depreciation and R&M
costs fell by a respective 19.3% and 17.7% YoY, with 4Q14A YoY reductions
likely much larger still. Some of these declines likely represent cost deferrals,
but UNTR also believes it has found ways to enhance its fleet life/efficiency
that are more sustainable in nature. Another question is to what extent these
cost savings will be retained rather than passed on to customers, and UNTR
has noted that rate reductions are now being implemented, but is unwilling to
elaborate on the extent of these, or provide margin guidance for FY15E.
Note: Recommendation timeline - if not a continuous line, then there was no
Macquarie coverage at the time or there was an embargo period.
Earnings and target price revision
Source: FactSet, Macquarie Research, March 2015
 FY15–16E +10.9% and +17.2%. Our FY15E earnings include a Pama gross
(all figures in IDR unless noted)
margin assumption of 23.0% (cf. FY14A 27.6%; 34.5% 4Q14A). Our FY15E
earnings estimate of Rp5.5tr is 39% estimated FY15E of normalised earnings
of Rp3.9tr. PT raised from Rp16.5k to Rp19.0k (18x norm. FY15E PER).
Price catalyst
Analyst(s)  12-month price target: Rp19,000 based on a PER methodology.
Lyall Taylor
+62 21 2598 8489 lyall.taylor@macquarie.com  Catalyst: Commencement of YoY earnings declines in FY15E.
3 March 2015
Action and recommendation
PT Macquarie Capital Securities  Maintain Underperform: UNTR has rallied c30% pre + post result, and now
Indonesia more than prices in the strong beat, whereas the stock remains expensive
and risky in our view, while margins look to be peaking. Underperform.
Please refer to page 25 for important disclosures and analyst certification, or on our website
www.macquarie.com/research/disclosures.
Macquarie Research United Tractors
4Q14A result summary

 We summarise UNTR’s 4Q14A result below. Denominated in the company’s reporting currency
(rupiah), UNTR’s 4Q14A revenues declined by 10.0% YoY to Rp12.3tr, to the lowest level in the
past eight quarters, driven by continuing weakness in heavy equipment sales and sluggish Pama
volumes. However, group gross margins expanded sharply from 19.9% to 27.9%, and operating
margins from 14.9% to 21.3% – both new records – driven by another period of exceptionally
strong margins for Pama, which drove 28.7% YoY increase in operating profits.
 Bottom-line earnings declined by 59.1% YoY, but were impacted by a Rp2.74tr impairment charge
taken to the value of UNTR’s mining concessions (Rp1.54tr net of minorities and taxes). However,
excluding this writedown (which was offset modestly by Rp73bn in gains on asset disposals and
Rp38bn in forex gains, both pre-tax), adjusted earnings rose very strongly by 41.4% to Rp2.05tr,
which was also a new quarterly record, and was almost double 1Q13A’s levels.
Fig 1 4Q14A result summary

Rp bn 1Q13a 2Q13a 3Q13a 4Q13a 1Q14a 2Q14a 3Q14a 4Q14a 4Q14a YoY
P&L
Revenues 12,450 12,451 12,404 13,707 13,901 13,631 13,277 12,332 -10.0%
-COGS 10,373 10,233 9,909 10,981 11,093 10,703 10,380 8,895 -19.0%
Gross profit 2,078 2,219 2,495 2,726 2,808 2,928 2,897 3,437 26.1%
-SG&A costs 651 700 739 687 690 760 942 813 18.3%
Operating profit 1,427 1,519 1,756 2,039 2,118 2,169 1,956 2,624 28.7%
+Depreciation 1,106 1,089 1,101 1,114 1,070 1,057 1,021 1,042 -6.4%
EBITDA 2,533 2,609 2,858 3,152 3,188 3,226 2,976 3,666 16.3%
-Depreciation 1,106 1,089 1,101 1,114 1,070 1,057 1,021 1,042 -6.4%
+Net interest income/(exp) -20 -24 -2 28 40 29 28 58
+Associate income 18 17 8 20 12 14 12 17
+Forex gains/(losses) 47 -37 -318 -11 -177 67 77 38
+Gains/(losses) on sale/reval 24 36 32 17 53 28 53 -2,670
+Other income 14 30 16 -51 23 4 -12 63
NPBT 1,510 1,542 1,493 2,043 2,069 2,310 2,114 130 -93.7%
-Taxes 386 363 430 610 515 607 607 52
-Minority interests -4 -2 -7 -22 -23 -5 16 -518
Reported NPAT 1,129 1,181 1,069 1,455 1,576 1,708 1,491 595 -59.1%
+After tax/MI NRIs -52 1 204 -4 93 -70 -93 1,456
Adjusted NPAT 1,076 1,182 1,273 1,450 1,669 1,638 1,398 2,051 41.4%
Key ratios
Revenue growth (yoy) -17.2% -20.1% -8.3% 16.0% 11.7% 9.5% 7.0% -10.0%
Gross margins 16.7% 17.8% 20.1% 19.9% 20.2% 21.5% 21.8% 27.9%
SG&A costs to sales 5.2% 5.6% 6.0% 5.0% 5.0% 5.6% 7.1% 6.6%
Operating margins 11.5% 12.2% 14.2% 14.9% 15.2% 15.9% 14.7% 21.3%
EBITDA margins 20.3% 21.0% 23.0% 23.0% 22.9% 23.7% 22.4% 29.7%
Effective tax rate 25.9% 23.8% 28.9% 30.2% 25.0% 26.4% 28.9% 40.4%
Adjusted NPAT growth -28.8% -28.7% -8.9% 10.8% 55.1% 38.6% 9.8% 41.4%
Return on equity 15.0% 15.6% 13.9% 18.0% 18.6% 19.6% 16.8% 6.5%
Source: Company data, Macquarie Research, March 2015
Fig 2 Quarterly trend in group revenues Fig 3 Quarterly trend in adjusted earnings
Rp tr Rp bn
16.0 15.3 15.0 15.6 2,500
14.1
13.5 13.7 13.9 13.6
14.0 13.3 2,051
12.6 13.0 12.5 12.5 12.4 12.3
11.8 2,000
12.0 1,762
1,658 1,669 1,638
1,563 1,513
10.0 1,398 1,450 1,398
1,500 1,308 1,273
1,226 1,209 1,182
8.0 1,076
6.0 1,000
4.0
500
2.0
0.0 0
2Q11a
3Q11a
4Q11a
2Q12a
3Q12a
4Q12a
1Q13a
2Q13a
3Q13a
1Q14a
2Q14a
3Q14a
1Q11a
2Q11a
3Q11a
4Q11a
1Q12a
2Q12a
3Q12a
4Q12a
1Q13a
2Q13a
3Q13a
1Q14a
3Q14a
1Q11a
1Q12a
4Q13a
4Q14a
4Q13a
2Q14a
4Q14a
Source: Company data, Macquarie Research, March 2015 Source: Company data, Macquarie Research, March 2015
3 March 2015 2
 Figs 2–3 highlight the divergence that has arisen between UNTR’s revenue and earnings trend
since the onset of the downturn in the coal mining sector since late 2011/early 2012. More
specifically, in 4Q14A UNTR’s rupiah revenues were 21.2% below the peak levels achieved in
2Q14A, and were at their second-lowest quarterly level in the past four years. However, earnings
have surged, and reached new highs in 4Q14A, eclipsing the prior peak in 3Q11A by 16.4%.
 This divergence has been driven by a steep increase in margins, and particularly in 4Q14A, and
Figs 4–5 below highlight the extent of the discontinuity in margins trends that occurred in 4Q14A in
particular. This steep inflection in 4Q margins was a large surprise to us.
Fig 4 Quarterly trend in gross margins Fig 5 Quarterly trend in EBIT margins
30.0% 27.9% 25.0%

21.3%
25.0%
21.5%21.8% 20.0%
19.8%19.4% 19.8%19.5% 20.1%19.9%20.2%
18.8% 15.3% 15.9%
20.0% 17.6%17.0% 17.4% 17.8% 14.9%15.2% 14.7%
16.7% 13.8% 13.8%13.6%13.9% 14.2%
15.0% 13.4%12.7% 12.9% 12.2%
11.5%
15.0%
10.0%
10.0%
5.0%
5.0%
0.0% 0.0%
1Q11a
2Q11a
3Q11a
1Q12a
2Q12a
4Q12a
1Q13a
3Q13a
4Q13a
2Q14a
3Q14a
1Q11a
2Q11a
3Q11a
1Q12a
2Q12a
4Q12a
1Q13a
3Q13a
4Q13a
2Q14a
3Q14a
4Q11a
3Q12a
2Q13a
1Q14a
4Q14a
4Q11a
3Q12a
2Q13a
1Q14a
4Q14a
Trends in USD earnings

 We note that Figs 2–3 are somewhat misleading, as they reflect the trend in UNTR’s rupiah-
denominated revenue and earnings, rather than its USD revenues/earnings, whereas the latter is
in fact the company’s functional currency. Figs 6–7 below therefore translate UNTR’s revenue and
earnings trend into USD at prevailing average spot rates during the relevant quarters. Figs 6–7
highlight that UNTR’s USD revenues in 4Q14A dropped to by far the lowest level in the prior four
years in USD to US$1.0bn, to levels 40.8% below the peak, while earnings of US$167m also
came in 18.1% below the peak booked in 3Q11A of US$204m, although were almost as high as
the average levels booked during 4Q11–2Q14A when revenues peaked.
Fig 6 Quarterly trend in group revenues – USD Fig 7 Quarterly trend in adjusted earnings – USD
US$m US$m
1,800 1,698 1,652 1,674 250
1,639
1,600 1,509 204
1,421 1,424
1,400 1,285 1,270 200 178
1,227 173 167
1,165 1,195 1,1761,173 1,129 166
1,200 147 141 141
1,006 150 138 141 136
1,000 121 120 126 119
111
800
100
600
400 50
200
0 0
1Q11a
2Q11a
3Q11a
4Q11a
1Q12a
2Q12a
3Q12a
4Q12a
1Q13a
2Q13a
3Q13a
1Q14a
3Q14a
4Q13a
2Q14a
4Q14a
1Q11a
2Q11a
3Q11a
4Q11a
1Q12a
2Q12a
3Q12a
4Q12a
1Q13a
2Q13a
3Q13a
1Q14a
3Q14a
4Q13a
2Q14a
4Q14a
 Fig 8 below also recasts UNTR’s key revenue and earnings lines in USD, utilising the average
quarterly USD/IDR exchange rate as reported by Bloomberg. Notable is that UNTR’s 4Q14A
quarterly USD revenues declined by 15.8% YoY, but earnings rose by 32.4% YoY. Also notable is
that depreciation charges declined by 12.4% YoY to a new recent low of just US$85m.
3 March 2015 3
Fig 8 UNTR’s earnings performance expressed in USD

US$m 1Q13a 2Q13a 3Q13a 4Q13a 1Q14a 2Q14a 3Q14a 4Q14a 4Q14a YoY
Revenues 1,285 1,270 1,165 1,195 1,176 1,173 1,129 1,006 -15.8%
EBITDA 261 266 268 275 270 278 253 299 8.9%
Depreciation 114 111 103 97 91 91 87 85 -12.4%
Operating profit 147 155 165 178 179 187 166 214 20.5%
Adjusted profit 111 121 120 126 141 141 119 167 32.4%
USD/IDR rate 9,692 9,802 10,649 11,474 11,820 11,616 11,756 12,255 6.8%
 UNTR’s reported earnings growth therefore partly reflects the incessant depreciation in the rupiah
that has occurred in recent years. This YoY currency relief peaked in 1Q14A (Fig 10), but was still
active in 4Q14A, where the USD/IDR rate averaged Rp12,255 vs. Rp11,474 in the pcp. Notable
however is that the current USD/IDR spot rate has fallen to about Rp12,800–12,900, and as a
result, significant currency relief will continue to be enjoyed by UNTR as it moves into 2015.
Fig 9 Quarterly trend in average USD/IDR rate Fig 10 YoY change in average USD/IDR rate
USD/IDR '000
14.0 25.0% 22.0%
12.26
11.47 11.82 11.62 11.76 19.1% 18.5%
12.0 10.65
20.0%
9.69 9.80
9.31 9.50 9.63
10.0 8.90 8.59 8.62 9.01 9.10 15.0% 12.1%
10.2% 10.4%
8.0 10.0% 8.4%
6.9% 6.6% 6.8%
5.3%
6.0 5.0% 2.2%
0.5%
4.0 0.0%
2.0 -5.0%
-3.9% -4.2%
-5.8%
0.0 -10.0%
2Q11a
3Q11a
4Q11a
2Q12a
3Q12a
1Q13a
2Q13a
3Q13a
4Q13a
1Q14a
2Q14a
4Q14a
1Q11a
2Q11a
1Q12a
2Q12a
3Q12a
4Q12a
1Q13a
3Q13a
4Q13a
1Q14a
2Q14a
3Q14a
1Q11a
1Q12a
4Q12a
3Q14a
3Q11a
4Q11a
2Q13a
4Q14a
Source: Bloomberg, Macquarie Research, March 2015 Source: Bloomberg, Macquarie Research, March 2015
Divisional result
 The breakdown of UNTR’s result by division is summarised in Figs 11–13. As can be seen, while
UNTR’s heavy equipment and principal coal mining revenues and earnings have continued to
dwindle in recent years, Pama’s revenues and earnings have surged, and formerly a minority of
earnings, Pama now represents the lion’s share of UNTR’s profitability (84.2% in 4Q14A).
 From an annual perspective, Figs 14–15 highlight that UNTR’s revenues have stagnated at about
the mid Rp50tr level for the past four years (despite a steep depreciation in the rupiah), with
substantial declines in heavy equipment revenues offset by growth in Pama revenue growth (in
local currency terms, whereas USD revenues have been largely flat). However, group gross profits
have risen from about Rp10tr to about Rp12tr, as Pama’s gross profits have ballooned from
Rp3.6tr in FY10A to Rp9.2tr in FY14A – not too far from a tripling.
3 March 2015 4
Fig 11 Divisional result summary

Net sales breakdown

Heavy equipment 4,197 4,288 3,714 3,445 4,435 4,006 3,451 3,092 -10.3%
Mining contracting (Pama) 7,077 7,359 8,167 8,952 8,054 8,149 8,915 8,375 -6.4%
Coal mining 1,176 805 523 1,310 1,413 1,476 911 865 -34.0%
Total 12,450 12,451 12,404 13,707 13,901 13,631 13,277 12,332 -10.0%
Revenue growth (yoy)

Heavy equipment -42.0% -38.1% -23.0% 8.8% 5.7% -6.6% -7.1% -10.3%
Mining contracting (Pama) 18.6% 5.7% 13.4% 13.8% 13.8% 10.7% 9.2% -6.4%
Coal mining -35.5% -52.5% -65.1% 67.1% 20.1% 83.4% 74.4% -34.0%
Total -17.2% -20.1% -8.3% 16.0% 11.7% 9.5% 7.0% -10.0%
Gross margins (net sales)

Heavy equipment 20.9% 22.5% 24.0% 28.7% 23.1% 22.1% 24.5% 27.4%
Mining contracting (Pama) 16.7% 16.8% 21.2% 19.7% 24.0% 26.5% 25.2% 34.5%
Coal mining 1.5% 2.3% -24.9% -2.2% -10.7% -8.1% -21.6% -35.2%
Total 16.7% 17.8% 20.1% 19.9% 20.2% 21.5% 21.8% 27.9%
Gross profit breakdown

Heavy equipment 876 965 892 987 1,025 887 845 848 -14.1%
Mining contracting (Pama) 1,185 1,235 1,733 1,767 1,934 2,160 2,250 2,893 63.7%
Coal mining 17 19 -130 -29 -151 -119 -197 -305 956.5%
Total 2,078 2,219 2,495 2,726 2,808 2,928 2,897 3,437 26.1%
Fig 12 Quarterly trend in revenue by division Fig 13 Quarterly trend in gross profit by division
Rp bn Rp bn
20,000 Heavy equipment Pama Principal coal 4,000 Heavy equipment Pama Principal coal 3,437
17,500 3,500 2,897

15,027
15,583 2,923 2,808 2,928
3,000 2,684 2,726
15,000 13,527 13,707 13,901 13,631 13,277 2,611 2,495
2,303
12,450 12,451 12,404 12,332 2,500 2,219
11,817 2,078
12,500 1,174
2,893
2,000 816 1,409 1,934 2,160 2,250
10,000 5,967 6,959 1,733 1,767
1,562
7,202 8,054 8,149
1,500 1,185 1,235
7,500 7,077 7,359 8,167 8,952 8,915
8,375
7,866 1,000
1,593 1,586
5,000 1,293
500 852 876 965 892 987 1,025 887 845 848
7,236 6,929
2,500 4,826 4,288 3,714 3,445 4,435 4,006 3,451 0
3,167 4,197 3,092
0 -500
1Q12a
2Q12a
3Q12a
4Q12a
1Q13a
2Q13a
3Q13a
4Q13a
1Q14a
2Q14a
3Q14a
4Q14a
1Q12a
2Q12a
3Q12a
4Q12a
1Q13a
2Q13a
3Q13a
4Q13a
1Q14a
2Q14a
3Q14a
4Q14a
Fig 14 Annual trend in revenue by division Fig 15 Annual trend in gross profit by division
Rp bn Rp bn
Heavy equipment Pama Coal mining Elimination
Heavy equipment 13,500 12,070
60,000 55,053 55,954
53,142
Mining contracting 51,012 12,000
50,000 10,194 10,521
Mining 10,500 9,517
37,324 9,000
40,000 22,418 9,237
27,994 7,500 6,671 6,796 3,597 4,961
27,903 29,242 31,554 33,493 5,499 5,920
30,000 6,000
16,929 2,394
4,500 3,293
18,166 3,247 2,065
20,000 2,601 2,381
13,281 13,720 11,619 15,419 3,000 1,791 5,760 5,324
8,896 7,844 27,200 1,099 1,151 1,107 1,204 3,990 3,720 3,605
10,000 6,548 7,795 22,158 1,500 783 3,080 3,137
17,275 15,644 14,983 488 779 1,487 1,241 1,807
4,099 12,368 10,981 0 457
6,733 5,925 8,698
3,936
0 -1,500
FY04a
FY05a
FY06a
FY07a
FY08a
FY09a
FY10a
FY11a
FY12a
FY13a
FY14a
FY03a
FY05a
FY06a
FY07a
FY09a
FY10a
FY11a
FY13a
FY14a
FY04a
FY08a
FY12a
3 March 2015 5
Pama
 With Pama now comprising the vast majority of UNTR’s earnings (and recent earnings surprises),
its earnings prospects are central to UNTR’s outlook, and we summarise Pama’s operating result
in Fig 16 below. Rupiah revenues declined by 6.4% YoY, driven by a 2.9% reduction in total
volumes handled, but EBITDA surged 33.4% alongside a 25.3% reduction in COGS (excluding
depreciation), while depreciation costs also fell by 14.9%. Consequently, gross margins ballooned
to a new high of 34.5% (pcp 19.7%), and drove a 63.7% YoY expansion in Pama’s gross profits.
Fig 16 Pama result summary

Volume metrics
Coal production 23.9 26.2 28.3 26.6 29.1 30.0 30.3 30.0 12.8%
Overburden removal 201.1 214.5 223.8 205.5 204.5 199.3 207.2 195.4 -4.9%
Total volume handled 225 240.7 252.1 232.1 233.6 229.3 237.5 225.4 -2.9%
Stripping ratio 8.4x 8.2x 7.9x 7.7x 7.0x 6.6x 6.8x 6.5x -15.7%
P&L metrics
Revenues 7,077 7,359 8,167 8,952 8,054 8,149 8,915 8,375 -6.4%
-COGS ex. depreciation 4,903 5,155 5,439 6,073 5,148 5,044 5,737 4,536 -25.3%
EBITDA 2,174 2,204 2,728 2,879 2,906 3,105 3,178 3,839 33.4%
-Depreciation 990 969 995 1,111 972 945 928 945 -14.9%
Gross profit 1,185 1,235 1,733 1,767 1,934 2,160 2,250 2,893 63.7%
Gross margins 16.7% 16.8% 21.2% 19.7% 24.0% 26.5% 25.2% 34.5%
Average USD/IDR 9,692 9,802 10,649 11,474 11,820 11,616 11,756 12,255 6.8%
Implied ASP per vol. handled $3.25 $3.12 $3.04 $3.36 $2.92 $3.06 $3.19 $3.03 -9.8%
ROE 20.3% 19.5% 26.8% 28.2% 27.1% 33.2% 30.1% 42.6% -100.0%
Growth rates (YoY)

Coal production 13.3% 12.0% 16.9% 3.5% 21.8% 14.5% 7.1% 12.8%
Overburden removal 4.4% -0.1% -1.4% -7.1% 1.7% -7.1% -7.4% -4.9%
Total volume handled 5.3% 1.0% 0.4% -6.0% 3.8% -4.7% -5.8% -2.9%
US$ ASP per vol handled 5.7% -0.6% 0.7% 1.6% -10.1% -1.9% 5.0% -9.8%
Revenues 18.6% 5.7% 13.4% 13.8% 13.8% 10.7% 9.2% -6.4%
Gross profit 45.1% 5.3% 23.0% 13.1% 63.2% 74.9% 29.8% 63.7%
 Figs 17–18 below highlight that 4Q14A represented something of an outlier for Pama’s margins
and profitability, with further material margin expansion coming on top of what had already been a
significant expansion in margins in recent quarters, from high-teen levels back in FY11–12A
(broadly in line with Pama’s 10-year average during Indonesia’s coal boom) into the mid-20s% by
early-mid 2014. Overall gross profits in 4Q14A were therefore almost three times as high as the
levels booked in late 2011, when coal prices and coal industry profitability were at all-time highs.
Fig 17 Quarterly trend in Pama gross profit Fig 18 Quarterly trend in Pama gross profit
Rp bn
2,893
3,000 40.0%
34.5%
35.0%
2,500 2,250
2,160
30.0% 26.5%
1,934 25.2%
2,000 24.0%
1,733 1,767 25.0%
1,562 21.2%
18.9% 19.6%19.9% 19.7%
1,409
1,500 20.0% 16.9% 16.7%16.8%
1,155 1,174 1,185 1,235 15.0% 16.0%
1,035 13.5% 13.7%
15.0%
1,000 804 816
603 10.0%
500 5.0%
0 0.0%
1Q11a
2Q11a
3Q11a
1Q12a
2Q12a
4Q12a
1Q13a
3Q13a
4Q13a
2Q14a
3Q14a
4Q11a
3Q12a
2Q13a
1Q14a
4Q14a
2Q11a
3Q11a
4Q11a
2Q12a
3Q12a
4Q12a
1Q13a
2Q13a
3Q13a
1Q14a
2Q14a
3Q14a
1Q11a
1Q12a
4Q13a
4Q14a
3 March 2015 6
 On a USD basis, revenues declined by 12.4% YoY in 4Q14A, but EBITDA rose 24.9% YoY and
gross profits rose 53.3%. USD non-depreciation costs fell 30.1% YoY, while depreciation fell
20.4% YoY. Notable from Fig 20 is that Pama’s revenues were close to quarterly lows since late
2011, whereas USD profits are at close to double the levels prevailing at that time.
Fig 19 Pama result summary – converted to USD

US$m 1Q13a 2Q13a 3Q13a 4Q13a 1Q14a 2Q14a 3Q14a 4Q14a 4Q14a YoY
Revenues 730 751 767 780 681 702 758 683 -12.4%
-COGS ex. depreciation 506 526 511 529 436 434 488 370 -30.1%
EBITDA 224 225 256 251 246 267 270 313 24.9%
-Depreciation 102 99 93 97 82 81 79 77 -20.4%
Gross profit 122 126 163 154 164 186 191 236 53.3%
USD/IDR 9,692 9,802 10,649 11,474 11,820 11,616 11,756 12,255

Source: Company data, Bloomberg, Macquarie Research, March 2015
Fig 20 Pama trend in USD revenues Fig 21 Pama trend in USD gross profit
US$m US$m
236
$900 $240
817
747 758 767 780 758
$800
709 720 730 751 186 191
681 702 683 $200
$700 656
622 162 163 164
148 154
$600 $160
134
481 492 503 126 122 126
$500 437 455 115
$120
94 90
$400
78
$300 $80 62 57 66 68
$200
$40
$100
$0 $0
1Q10a
2Q10a
3Q10a
4Q10a
1Q11a
3Q11a
4Q11a
2Q12a
3Q12a
1Q13a
2Q13a
4Q13a
1Q14a
3Q14a
4Q14a
2Q11a
1Q12a
4Q12a
3Q13a
2Q14a
1Q10a
2Q10a
3Q10a
4Q10a
1Q11a
3Q11a
4Q11a
2Q12a
3Q12a
1Q13a
2Q13a
4Q13a
1Q14a
3Q14a
4Q14a
2Q11a
1Q12a
4Q12a
3Q13a
2Q14a
Volume picture remains soggy

 As has been the case in recent quarters/years, the sharp increase in Pama’s profitability has not
been driven by volumes. While headline coal production growth has been strong (+12.8% YoY in
4Q14A), coal production represents only a small portion of Pama’s total volumes handled, with
overburden removal being the much more important volume metric, and Pama’s overburden
removal continued to decline during 4Q14A (falling by 4.9% YoY).
Fig 22 Quarterly trend in Pama volumes Fig 23 Annual trend in Pama volumes
m MT/bcm m MT/bcm
300 Coal produced (m MT) Overburden removed (m bcm) Total 1,000 949.9 950.0 925.8
Coal produced (m MT) 883.2
245.5 251.1 247.0 252.1 900
231.2 238.2 240.7
232.1 233.6 229.3 237.5 225.4 Overburden removed (m bcm)
250 225.0 800 728.7
219.8 213.7
Total 665.9
186.8 700
200
600
500.9
500 855.5 844.9 806.4
150 408.9 796.4
222.1 207.9 214.8 226.9 221.3 214.5 223.8 205.5 204.5 199.3 207.2 195.4 381.7
199.0 192.6 201.1 400 650.9
597.9
100 167.4 300 236.9
442.0
200 148.4 168.5 170.0 339.3 354.7
120.1
50 201.6
100 95.4 119.5 140.8
140.6
19.4 20.8 23.4 23.3 21.1 23.4 24.2 25.7 23.9 26.2 28.3 26.6 29.1 30.0 30.3 30.0 77.8 86.8 94.4 105.1 119.4
0 0 24.7 28.9 27.7 29.4 35.3 42.4 54.2 58.9 68.0
FY02a
FY03a
FY04a
FY05a
FY07a
FY08a
FY09a
FY10a
FY11a
FY13a
FY14a
FY01a
FY06a
FY12a
1Q11a
2Q11a
3Q11a
4Q11a
2Q12a
3Q12a
4Q12a
1Q13a
2Q13a
4Q13a
1Q14a
2Q14a
3Q14a
4Q14a
1Q12a
3Q13a
3 March 2015 7
 Consequently, Pama’s aggregate volumes handled actually declined by 2.9% YoY in 4Q14A (Fig
22). This weak volume trend reflects the recent sharp slowdown in the Indonesian coal industry,
and the implementation of high-grading activity, which has seen stripping ratios fall sharply. In
addition, coal production was largely flat on a QoQ basis compared to 1Q–3Q14A levels, so had
little to do with the sharp QoQ expansion in Pama’s margins. Coal production growth may also
have been inflated by the inclusion of coal hauling volumes in coal production this year.
Fig 24 Quarterly trend in Pama stripping ratios Fig 25 Annual trend in Pama stripping ratios
11.0x Cost cutting and "high grading" 10.0x 9.2x 9.1x

activity has accelerated 8.8x
9.0x 8.4x
10.0x 9.6x 9.5x 8.0x 8.0x
9.2x 9.4x
8.9x 9.1x 8.0x 7.5x
9.0x 8.6x 8.6x 8.4x 6.8x
8.2x 7.0x 6.5x
7.9x 7.7x
5.7x
8.0x 6.0x
7.0x 5.1x
4.8x
7.0x 6.6x 6.8x 6.5x 5.0x 4.1x
3.9x
4.0x
6.0x
3.0x
5.0x
2.0x
4.0x 1.0x
3.0x 0.0x
FY01a
FY02a
FY03a
FY04a
FY06a
FY07a
FY09a
FY10a
FY12a
FY13a
FY14a
FY05a
FY08a
FY11a
1Q11a
2Q11a
3Q11a
4Q11a
1Q12a
1Q13a
2Q13a
3Q13a
4Q13a
1Q14a
2Q14a
3Q14a
4Q14a
2Q12a
3Q12a
4Q12a
Cost savings appear to have been the key driver

 Instead of volume growth, cost savings appear to have been the key driver of Pama’s earnings
growth of late, which have continued to be magnified by favourable foreign currency movements –
both underlying, and from an accounting perspective. Fig 26 below highlights that in USD, Pama’s
consumable costs declined by 17.6% YoY in FY14A; R&M by 17.7% YoY; depreciation by 19.3%
YoY; subcontractor costs by 43.3% YoY; and overhead costs by 7.1%. Ironically, the only cost
category to increase in USD terms was labour, which rose by 5.6%, despite the fact that this cost
category should have benefitted from a reduction in the USD/IDR exchange rate.
 Unfortunately, UNTR does not provide a breakdown of Pama’s COGS on a quarterly basis, only
an annual basis, so we are unable to isolate the extent of the change costs in 4Q14A alone.
However, given 4Q14A’s much stronger-than-average margins, the magnitudes of the USD cost
reductions booked in 4Q14A would have been materially higher than the percentages outlined in
Fig 26. In the context of the relatively minor reduction in volumes booked during FY14A of 2.6%
YoY (and 2.9% in 4Q14A), these cost reductions are substantial.
Fig 26 Trend in Pama’s COGS

FY10a FY11a FY12a FY13a FY14a FY13a YoY FY14a YoY
Rupiah (bn)
Consumables 4,930 7,436 9,419 9,805 9,215 4.1% -6.0%
R&M 2,827 3,392 4,245 5,090 4,779 19.9% -6.1%
Depreciation 2,500 3,006 3,918 3,877 3,569 -1.0% -8.0%
Sub-contractors 1,901 1,818 1,376 2,348 1,518 70.6% -35.4%
Employee costs 1,141 1,590 2,155 2,717 3,273 26.1% 20.4%
Overhead 1,108 1,579 1,920 1,797 1,903 -6.4% 5.9%
Total COGS 14,406 18,821 23,034 25,634 24,256 11.3% -5.4%
USD/IDR 9,085 8,781 9,384 10,404 11,862
US$m
Consumables $543 $847 $1,004 $942 $777 -6.1% -17.6%
R&M $311 $386 $452 $489 $403 8.1% -17.7%
Depreciation $275 $342 $418 $373 $301 -10.7% -19.3%
Sub-contractors $209 $207 $147 $226 $128 53.9% -43.3%
Employee costs $126 $181 $230 $261 $276 13.8% 5.6%
Overhead $122 $180 $205 $173 $160 -15.6% -7.1%
Total COGS $1,586 $2,143 $2,455 $2,464 $2,045 0.4% -17.0%
3 March 2015 8
Unclear how sustainable cost reductions are

 It remains unclear how sustainable these cost reductions will prove to be, and more pointedly, how
much of these savings represent genuine and sustainable cost efficiency enhancements, and how
much represents deferred maintenance/expenditure will need to be incurred in future periods.
 UNTR believes that it has undertaken a number of efficiency measures which have allowed it to
prolong the useful life of many of its machines, and reduce maintenance costs per hour of
machine time, so sustainable efficiency gains do look to have played a part. It is likely that the coal
downturn, coupled with ongoing negotiations with customers that look set to result in some
reductions in contracting rates, have played a part in increasing the urgency with which Pama has
sought to reduce its cost base, and the company is having some success in this regard.
 However, the extent of the declines in costs during FY14A, and especially in 4Q14A, indicate to us
that a significant quantity of deferred maintenance and other cost deferrals have also contributed
to higher margins. Continuing low levels of equipment replacements have also contributed (37% of
Pama’s fleet is currently not accruing any depreciation), while sub-contractor costs have also
fallen sharply, which implies that Pama has likely enjoyed some success in imposing contract rate
reductions onto its sub-contractors, but may be yet to pass on those savings to customers. Only
time will tell how long costs can be contained at present levels.
Fig 27 Composition of Pama COGS (FY14A) Fig 28 Trend in revenues per MT/bcm handled
Overhead US$/MT+bcm
7.8%
$3.60
$3.36
$3.31
$3.25
$3.19
$3.11 $3.14 $3.12
Employee $3.20 $3.07 $3.06
$3.02 $3.04 $3.03
costs
$2.89 $2.92
13.5% $2.83
Sub- Consumables
38.0% $2.80 $2.69
contractors
6.3%
Depreciation $2.40
14.7%
R&M $2.00
1Q11a
3Q11a
4Q11a
2Q12a
3Q12a
4Q12a
1Q13a
3Q13a
4Q13a
2Q14a
3Q14a
2Q11a
1Q12a
2Q13a
1Q14a
4Q14a
19.7%
 Also noteworthy is that a contributor to the decline in consumables costs was likely also the fall in
diesel prices during 4Q14A. For some of Pama’s mining contracts, its customers supply the fuel
(in which case movements in diesel prices do not impact Pama’s revenues and margins), but for
some of its other customers, Pama provides the fuel but receives reimbursements from clients. In
this latter case, both costs and revenues should decline along with lower diesel prices. This would
justify an expansion in percentage gross margins, but not in the absolute level of gross profits.
Some short-term distortion in this flow-though mechanism alongside a very sharp decline in oil
prices during 4Q14A may also have contributed to short-term profit margin gains during 4Q14A.
 However, lower consumables costs also likely reflected a reduction in spare-parts utilisation for
Pama’s fleet, particularly given that R&M costs declined by 17.7%, which was broadly in parity
with the reduction in consumables costs.
Will Pama be required to pass these cost savings through to customers?

 Aside from the sustainability of the relevant cost savings, the other pertinent issue is the extent to
which Pama will be required to pass these cost savings through to customers in the form of lower
mining contracting rates, which remain elevated and at close to ‘bull market’ levels.
 To date, it would appear that Pama has had a large degree of success in maintaining contracting
rates at levels not appreciably below prior levels. In conjunction with the implementation of radical
cost savings, this has allowed Pama to capture the vast bulk of the efficiency gains it has realised,
rather than pass those gains through to customers. Fig 28 highlights that UNTR’s average
revenues per MT of coal and bcm of overburden produced has trended relatively flat, although we
caution that changes can be misleading and reflect a change in contract mix.
3 March 2015 9
 How sustainable this situation will prove to be remains questionable in our view, and UNTR is now
admitting that contract rates have recently begun to be reset downwards, although it is not
prepared to comment on the degree to which this has occurred, and has refrained from providing
any margin guidance for 2015 (whereas it usually guides for 16–17%). We believe there is a very
high chance margins will reset lower during 2015-16 as lower contracting rates come into effect,
and some of Pama’s costs (maintenance, spare parts, and depreciation) begin to normalise.
We continue to believe Pama to be over-earning

 Very relevant in this regard is our ongoing view that Pama is materially over-earning at present.
Indeed, its average gross profit per tonne of coal removed in 4Q14A rose to a record US$7.87/MT,
and averaged a record US$6.52/MT in FY14A overall. In a US$60/MT Newcastle thermal coal
world (which translates to a US$45–50/MT ASP for most of Indonesia’s producers, who typically
produce off-spec lower-rank coal), Pama is currently lowering the gross margin of coal producers
by c13–14% vs. a comparably-efficient in-sourced contracting operation. Such a large loss of
margin may not be sustainable in a world with relatively low commodity prices, and for many
producers, US$6.52/MT in margin will be the difference between making and losing money.
 It is hard to see this situation being sustainable if coal prices remain depressed for an extended
period of time moving forward (which we expect) – particularly given that Pama is a publicly-listed
company and it is therefore transparent to its customers how much money it is making.
Fig 29 Annual trend in Pama GP per MT of coal Fig 30 Pama gross profit per MT of coal produced
USD/MT USD/MT
$7.00 $6.52 $9.00
$7.87
$6.00 $5.60 $8.00
$5.41
$4.72 $7.00 $6.13 $6.31 $6.20 $6.32
$5.00 $4.65
$5.72 $5.75$5.79 $5.62
$6.00 $5.39
$5.11
$3.62 $4.93 $4.81
$4.00 $3.36 $3.39 $5.00 $4.50
$4.25
$2.98 $2.85
$3.00 $2.62
$2.43 $4.00 $3.49
$2.05
$1.85 $3.00
$2.00
$2.00
$1.00
$1.00
$0.00 $0.00
FY02a
FY03a
FY04a
FY05a
FY07a
FY08a
FY09a
FY10a
FY11a
FY13a
FY14a
FY01a
FY06a
FY12a
1Q11a
2Q11a
3Q11a
4Q11a
1Q12a
3Q12a
1Q13a
3Q13a
1Q14a
2Q14a
3Q14a
4Q14a
2Q12a
4Q12a
2Q13a
4Q13a
Fig 31 Pama gross profit per bcm of O/B produced Fig 32 Pama gross profit per MT+bcm produced
USD/bcm USD/MT&bcm
$1.40 $1.20
$1.21 $1.05
$1.20 $1.00
$0.93 $0.92 $0.81$0.81
$1.00
$0.80 $0.80 $0.70
$0.73 $0.73 $0.75
$0.66 $0.65 $0.66
$0.80 $0.59
$0.65 $0.55 $0.53 $0.54 $0.52
$0.60 $0.59 $0.61 $0.59 $0.60 $0.50
$0.55
$0.60 $0.47 $0.47 $0.43 $0.42
$0.40 $0.36
$0.40
$0.40
$0.20 $0.20
$0.00 $0.00
1Q11a
2Q11a
3Q11a
4Q11a
1Q12a
3Q12a
1Q13a
3Q13a
1Q14a
2Q14a
3Q14a
4Q14a
1Q11a
2Q11a
3Q11a
4Q11a
1Q12a
3Q12a
1Q13a
3Q13a
1Q14a
2Q14a
3Q14a
4Q14a
2Q12a
4Q12a
2Q13a
4Q13a
2Q12a
4Q12a
2Q13a
4Q13a
 Notable is that Pama’s contract mix and coal-vs-overburden mix has shifted in recent years,
alongside a decline in stripping ratios. However, viewed from any perspective (total gross profits to
overburden produced – Fig 31 – or total gross profits to total materials handled (coal plus
overburden) – Fig 32) – Pama’s profitability remains extremely high by historical standards.
3 March 2015 10
 Also starkly notable is the divergence in Pama’s profitability per tonne compared to two of its listed
peers DOID and PTRO. We believe there are likely three components to this divergence: (1)
UNTR’s rupiah-based accounting (vs. USD for DOID and PTRO), which has resulted in the
downward-biasing in UNTR’s depreciation charges vs. its peers; (2) Pama’s superior operating
efficiency (although we do not believe the gap to be that large); and (3) Pama’s premium pricing
(Pama has a 45% market share of Indonesian mining contracting revenues, according to the
company, but its market share by volume appears to only be c30% by our estimation). It remains
to be seen how sustainable this situation will prove to be longer term.
Fig 33 Pama gross profit per MT/coal vs. peers* Fig 34 Pama gross profit per bcm of O/B vs. peers*
m bcm/m US$ US$/bcm

900.0 $0.80
Overburden removed (bcm) 806.4 $0.71
800.0 $0.70
EBIT (US$)
700.0 $0.60
$572.0
600.0
$0.50
500.0
$0.40 $0.33
400.0 $0.28
280.0 $0.30
300.0
$0.20
200.0 137.9
$79.6 $0.10
100.0 $45.5
0.0 $0.00
PTRO DOID Pama PTRO DOID Pama
Source: Company data, Macquarie Research, March 2015; *FY14A for Source: Company data, Macquarie Research, March 2015, *FY14A for
Pama; 9M14A annualised for PTRO and DOID; for Pama, is group Pama; 9M14A annualised for PTRO and DOID; for Pama, is group
operating profit multiplied by % of group gross profit deriving from Pama. operating profit multiplied by % of group gross profit deriving from Pama.
How much might Pama’s margins decline

 The biggest downside risk to Pama’s margins from here is that a combination of some cost
normalisations, following the institution of various cost deferrals in FY14A, coupled with a decline
in contracting rates, conspires to normalise profitability. Our analysis indicates that Pama’s
margins would be highly sensitive to even small movements in these two variables.
 For instance, Fig 35 highlights a scenario in which – assuming volumes remain constant – mining
contracting rates decline by a relatively benign 3.0%, while half of the reductions in costs booked
during FY14A were reversed, and half retained (i.e. 50% of the reductions are sustainable; 50%
not). This would result in a decline in gross profit of 37.8% YoY, and a decline in gross margins to
17.7% from 27.6% in FY14A, to levels roughly in line with their long-term average.
Fig 35 Change in Pama’s gross margins if 50% of FY14A cost reductions reverse
US$m FY13a FY14a FY15e FY15e YoY
Revenues $3,033 $2,824 $2,739 -3.0%
Cost of revenue
Consumables $942 $777 $860 10.7%
R&M $489 $403 $446 10.7%
Depreciation $373 $301 $337 11.9%
Sub-contractors $226 $128 $177 38.2%
Employee costs $261 $276 $269 -2.7%
Overhead $173 $160 $167 3.8%
Cost of revenue $2,464 $2,045 $2,254 10.2%
Gross profit $569 $779 $485 -37.8%

Gross margin 18.8% 27.6% 17.7% -9.9%
3 March 2015 11
 Meanwhile, Fig 36 highlights a scenario where cost normalisations were much more benign (which
could occur for FY15E, rather than the long-term outlook), where R&M costs increase by only
10.0% (but remain c10% below FY13A levels), and consumables costs rise only 3%, with all other
cost categories remaining unchanged. This would reduce margins to 23.0% in FY15E (which is in
line with our current FY15E Pama gross margins forecast, although we foresee margins
continuing to mean revert towards 17% in subsequent years).
Fig 36 FY15E gross margin outlook on benign cost normalisation scenario

US$m FY13a FY14a FY15e FY15e YoY
Revenues $3,033 $2,824 $2,739 -3.0%
Cost of revenue
Consumables $942 $777 $800 3.0%
R&M $489 $403 $443 10.0%
Depreciation $373 $301 $301 0.0%
Sub-contractors $226 $128 $128 0.0%
Employee costs $261 $276 $276 0.0%
Overhead $173 $160 $160 0.0%
Cost of revenue $2,464 $2,045 $2,108 3.1%
Gross profit $569 $779 $630 -19.0%

Gross margin 18.8% 27.6% 23.0% -4.6%
Insourcing and discontinuity risk

 A very important long-term risk to Pama is in-sourcing, in our view. Given Pama’s current margins,
the amount of available margin to Indonesian coal producers who can in-source coal production at
a comparable level of efficiency to Pama is now very large, and the retention of this margin may
become increasingly important to remaining profitable for many producers. Furthermore, many of
Pama’s major customers have their own contracting subsidiaries (notably Adaro and Indika’s
Kideco), while PTBA has expressed an intention to bring production in-house long-term. UNTR
has not yet disclosed the breakdown of its FY14A production by customer, but in FY13A, these
three customers comprised 30.7% of Pama’s overburden removal volumes.
 Insourcing is not something that can be done rapidly, but is a dynamic which has hammered
mining contractors in Australia, and so is a risk worth thinking about for UNTR investors.
Fig 37 Breakdown of Pama’s coal production (2013) Fig 38 Breakdown of Pama’s O/B removal (2013)
Adaro Others Adaro

Others 14.1%
17.6% 17.0%
20.9%
Bukit Asam
(PTBA)
5.2%
Bukit Asam Indominco Indominco
(ITMG) Trubaindo (ITMG)
(PTBA)
13.9% (ITMG) 20.6%
8.6%
6.7%
Trubaindo
(ITMG) KPC (Bumi)
Kideco 14.6% Kideco KPC (Bumi)
4.7% Jembayan
(Indika) (Indika) 14.5%
(Sakari)
Jembayan 12.3% 11.4%
(Sakari) 10.5%
7.5%
 Other risks relate not just to contract rate reductions, but to a loss of contracts to competing
mining contracting providers, who may be able (and prepared) to offer lower prices than Pama.
Deleveraging and constrained capex may have limited the ability of alternative producers to
compete for Pama’s business over the past several years, coupled with the constraints imposed
by coal customers’ existing contractual commitments to existing mining contract service providers,
but that may change. In addition, smaller producers, who account for 17–20% of Pama’s
production, may be higher-cost and unable to remain in production in coming years.
3 March 2015 12
 Notable is that competing producer PTRO’s operating margins, after remaining highly resilient,
showed a sharp decline in 3Q14A. However, 3Q14A revenues increased 9.2% QoQ in 2Q14A and
17.2% vs. 1Q14A levels, suggesting that the company may have won new contracts (on less
favourable pricing terms). PTRO’s margin trend also highlights how the impact of weakening coal
industry conditions can be delayed significantly by pre-existing contractual relationships, but that
when contractual terms are reset, the impact on margins can be large and rapid.
Fig 39 Trend in Petrosea’s gross margins Fig 40 Trend in Petrosea’s operating margins
40.0% 30.0%
35.5%
34.4%
35.0% 24.0% 24.7%
25.0%
27.5%28.1% 28.3% 27.8%27.0% 20.9%
30.0% 20.1% 20.1%19.6%
25.8%25.6% 25.1% 25.1% 19.0%
24.5% 20.0% 17.3%18.2% 17.7% 17.8%
23.3% 22.6%
25.0% 16.6%
13.5% 14.1%
20.0% 15.0%
14.0%
15.0%
10.0%
10.0% 6.0%
5.0%
5.0%
0.0% 0.0%
1Q11a
2Q11a
3Q11a
4Q11a
1Q12a
2Q12a
3Q12a
4Q12a
1Q13a
2Q13a
3Q13a
4Q13a
1Q14a
2Q14a
3Q14a
1Q11a
2Q11a
3Q11a
4Q11a
1Q12a
2Q12a
3Q12a
4Q12a
1Q13a
2Q13a
3Q13a
4Q13a
1Q14a
2Q14a
3Q14a
Giving credit where it is due

 With all of the above said, we believe it must be acknowledged that Pama has continued to prove
its world-class capabilities as a contractor in recent periods, as well as its relatively strong
bargaining position compared to other mining services providers globally, where contracting rates
have been decimated, and mining contracting companies typically trade at small fractions of book.
 The company has successfully extracted significant cost reductions; has optimised the
management of its fleet; and has successfully out-negotiated its customers, who would appear to
be holding a weaker bargaining position than might have first been assumed (although, as noted,
significant “discontinuity risk” exists, where one or more major contracts are lost to insourcing or to
competing lower-cost contractors; or where certain customers cease or cut production).
 UNTR also deserves credit for the way it has managed its balance sheet (with the possible
exception of its poorly-timed acquisition of expensive low-quality mining concessions at the peak
of the cycle), in having raised equity several times during the boom years, and tightened up on
capital expenditures in recent years. This has allowed the company to move into a net cash
position in recent times, positioning the company well to endure the current downturn.
Normalising Pama’s earnings trend

 As we have discussed in the past, Pama’s long term margins during the boom 2003-13 years for
the coal industry averaged about 17% (although that average increases to 18% if FY14A is
included). We continue to believe it is appropriate to normalise Pama’s margins back to this level
to get a clearer view of Pama’s sustainable earnings power, despite the fact that a 17% margin
may now look too conservative in light of recent quarterly results. We believe 17% remains a
sufficiently generous assumption at this point, given the over-earning risks outlined above; the
weak outlook for the coal industry; the fact that 2003-13 was a boom period for coal and does not
cyclically adjust for a prolonged industry downturn; and the fact that Pama has suffered very sharp
margin reversals in the past after periods of margin expansion (see Figs 41–42).
3 March 2015 13
Fig 41 Long-term trend in Pama’s gross margins Fig 42 Annual trend in Pama’s rupiah gross profit
Rp bn
30.0% 27.6% 10,000 9,237
Gross margins FY03-14a average
9,000
25.0%
21.4% 8,000
19.1% 18.8% 7,000 Poorer weather and
20.0% 16.0% 17.6% 17.8% 16.0% 17.7% 5,920
currency reversal
6,000
14.2% 15.3% 14.1% 4,961
15.0% 5,000 Favourable weather
plus currency boost
3,597
4,000 3,293
10.0% 2,394
3,000 2,065
2,000 1,151 1,107 1,204
5.0% 783
1,000 488
0.0% 0
FY03a
FY04a
FY05a
FY06a
FY08a
FY09a
FY10a
FY12a
FY13a
FY14a
FY07a
FY11a
FY03a
FY04a
FY05a
FY06a
FY07a
FY08a
FY10a
FY11a
FY13a
FY14a
FY09a
FY12a
 If we normalise Pama’s margins to 17%, as well as consider Pama’s earnings trend on a USD
basis, a different (and, we would submit, a far more intuitive) earnings picture emerges, with the
company’s earnings having peaked during FY12–13A, and declined somewhat in FY14A.
However, the extent of the over-earning gap in FY14A is also larger than it has ever been. The
most recent gap was in FY09A, when Pama reported US$316m in gross profit vs a normalised
US$252m, which subsequently corrected in FY10A as the rupiah strengthened and weather
deteriorated. This suggests either that UNTR’s reported earnings are set for a steep fall, or that
our normalisation methodology is flawed. At this point, we believe the former is more likely, but we
will continue to monitor this situation as events unfold.
Fig 43 Pama rupiah normalised vs. reported GP Fig 44 Pama USD normalised vs. reported GP
Rp bn US$m
10,000 Pama normalised 9,237 $1,000 Pama normalised
Normalisation gap Normalisation gap $779
8,000 $800
Pama reported Pama reported
5,920 $569
6,000 $600 $529
4,961
$410
3,597
4,000 3,293 $400 $316 $263
2,394
2,065 5,694 $213
4,759 5,364 $121 $132 $434
$507 $516 $480
2,000 1,151 1,107 1,204 3,811 $200 $88 $119
783 $57 $317
488 2,621 2,878 $204 $252
1,975 $145 $146
517 697 1,113 1,325 1,334 $60 $78 $115
0 $0
-2,000 -$200
FY03a
FY04a
FY05a
FY06a
FY07a
FY08a
FY09a
FY10a
FY11a
FY12a
FY13a
FY14a
FY03a
FY04a
FY05a
FY06a
FY07a
FY08a
FY09a
FY10a
FY11a
FY12a
FY13a
FY14a
Conclusion
 Pama has continued to execute well in increasingly difficult operating conditions. It has done well
to aggressively reduce costs and prolong negotiations with mining customers to maintain pre-
existing contractual rates. For this, the company deserves a lot of credit, and warrants a multiple
premium vs peers to reflect its quality and strong balance sheet.
 However, we continue to believe there is strong evidence that Pama is materially over-earning,
having benefitted from some cost deferrals; a favourable movement in the USD/IDR which has
biased down certain costs below sustainable levels (notably depreciation charges); and the delay
of the onset of lower contracting rates vis-à-vis the timing of cost efficiency gains coming through.
We therefore believe a decline in margins towards long-term averages of 17% remains likely.
3 March 2015 14
Heavy equipment
 We summarise UNTR’s 4Q14A heavy equipment result below, which comprised 24.7% of 4Q14A
group gross profit (c.f. Pama 84.2%, and principal mining –8.9%). Unlike with Pama, the result
contained no major surprises and did not meaningfully depart from the operational trends evident
in recent quarters. However, although margins were slightly stronger than expected given the very
weak level of Komatsu unit volume sales booked during 4Q14A.
Fig 45 Heavy equipment divisional summary

1Q13a 2Q13a 3Q13a 4Q13a 1Q14a 2Q14a 3Q14a 4Q14a 4Q14a YoY
Komatsu volumes
Mining 645 527 244 368 440 348 257 171 -53.5%
Plantations 287 239 314 243 233 251 206 121 -50.2%
Construction 229 329 218 216 358 259 218 160 -25.9%
Forestry 111 85 75 73 180 138 94 79 8.2%
Total 1,272 1,180 851 900 1,211 996 775 531 -41.0%
Komatsu market share 43.0% 39.1% 41.1% 40.9% 42.3% 37.1% 40.7% 37.4%
Market volumes 2,959 3,021 2,070 2,202 2,864 2,682 1,903 1,418 -35.6%
Net revenues (Rp bn)

Komatsu sales 2,286 2,303 1,481 1,432 2,287 1,762 1,241 877 -38.8%
UD Truck sales 136 136 40 16 47 38 51 18 12.5%
Scania sales 176 179 106 108 178 152 71 64 -40.7%
Other equip. & attach. 378 390 469 490 514 586 572 545 11.2%
Parts & service 1,221 1,279 1,618 1,400 1,409 1,467 1,516 1,588 13.4%
Total net revenues 4,197 4,288 3,714 3,445 4,435 4,006 3,451 3,092 -10.3%
Eliminated sales to Pama - net 1,578 1,937 1,282 2,621 1,867 1,789 1,786 1,502 -42.7%
Gross HE revenues 5,775 6,224 4,997 6,067 6,302 5,795 5,237 4,594 -24.3%
Komatsu ASP (net sales, Rp m) 1,797 1,952 1,740 1,591 1,889 1,769 1,601 1,652 3.8%
Gross profit 876 965 892 987 1,025 887 845 848 -14.1%
Gross margins (gross sales) 15.2% 15.5% 17.9% 16.3% 16.3% 15.3% 16.1% 18.5% 13.4%
Gross margins (net sales) 20.9% 22.5% 24.0% 28.7% 23.1% 22.1% 24.5% 27.4% -4.3%
 Divisional net revenues declined by 10.3% YoY in 4Q14A. This was a relatively modest decline in
light of the 41.0% YoY decline in Komatsu new unit sales booked during 4Q14A due to the
mitigating effect of a growing share of divisional revenues accruing from spare parts & servicing,
where revenues are more defensible during industry downturns. Komatsu new unit net sales
declined by 38.8% YoY, but SP&S revenues rose by 13.4% (in rupiah) and represented 51.4% of
divisional revenue. Further depreciation in the USD/IDR cross rate will also have favourably
assisted group rupiah revenues, due the USD-pricing of most equipment and spare parts.
 Meanwhile, gross profits continued to “bounce along the bottom” – albeit also with continued
supporting pulse from continuing weakness in the rupiah (earnings were at a new low in USD).
Fig 46 Quarterly trend in revenue by source Fig 47 Trend in divisional gross profit
Rp bn
Komatsu sales 2,000
Rp bn
7,295 7,236 UD Truck sales
7,500 6,840 6,832 6,929
1,5931,586
Scania sales 1,504
6,233 1,600 1,453 1,487
Other equip. & attach.
6,000 1,317 1,293
4,826
Parts & service
4,197 4,287
4,435 1,200
4,500 4,005 965 987 1,025
3,714 852 876 892 887 845 848
3,446 3,451
3,167 3,092
800
3,000
1,500 400
0 0
1Q11a
2Q11a
3Q11a
4Q11a
1Q12a
3Q12a
1Q13a
3Q13a
1Q14a
3Q14a
4Q14a
2Q12a
4Q12a
2Q13a
4Q13a
2Q14a
1Q11a
2Q11a
3Q11a
4Q11a
1Q12a
2Q12a
3Q12a
4Q12a
1Q13a
2Q13a
3Q13a
1Q14a
3Q14a
4Q13a
2Q14a
4Q14a
3 March 2015 15
Volumes and market share

 Komatsu new unit volumes were very weak in 4Q14A, at just 531 units – a new quarterly low this
cycle. For FY14A overall, new unit sales therefore fell further to 3,513 units from 4,203 units last
year (–16.4%). As is to be expected, demand from the coal sector was very weak, but 4Q14A also
witnessed a sharp decline in demand from the plantation sector, as well as relatively soggy
demand from the construction industry (sales were flat in FY14A overall YoY, and down 24.9%
YoY in 4Q14A, despite much optimism about a potential pick-up ahead of increased infrastructure
spending). Forestry sales were strong in 1Q14A but weakened as 2014 wore on.
Fig 48 Quarterly trend in Komatsu volumes Fig 49 Long-term annual trend in Komatsu volumes
2,500
8,467
10,000
2,207 2,207 Forestry Mining Plantations Construction Forestry
2,126 2,0632,071 9,000
2,024
Construction
2,000 8,000
6,202
Plantations
7,000
5,404
Mining
1,500 6,000
4,345
4,203
1,224 1,272 1,211
1,180
3,513
5,000
3,454
3,117
996
851 900
2,573
1,000 4,000
2,250
747 775
2,012
1,823
1,757
1,619
3,000
1,406
1,200
1,205
531
945
916
2,000
825
500
758
622
548
441
1,000
0 0
FY92a
FY93a
FY94a
FY95a
FY97a
FY99a
FY00a
FY01a
FY02a
FY04a
FY05a
FY06a
FY07a
FY09a
FY11a
FY12a
FY13a
FY14a
FY91a
FY96a
FY98a
FY03a
FY08a
FY10a
1Q10a
2Q10a
3Q10a
4Q10a
1Q11a
2Q11a
3Q11a
4Q11a
1Q12a
2Q12a
3Q12a
1Q13a
3Q13a
4Q12a
2Q13a
4Q13a
 Weak volumes were mostly a ‘market demand’ story, but market share pressures also played an
incremental role. For 4Q14A alone, UNTR’s Komatsu market share slipped to 37.4% (c.f. 40.7% in
3Q14A), and for FY14A overall, declined to 39.6% from 41.0% last year. As Figs 50–51 below
demonstrate, Komatsu’s market share trend has been fairly clearly downwards since 2005.
Fig 50 Quarterly Komatsu market share trend Fig 51 Annual Komatsu market share trend
60.0% 54.1%
60.0%
48.2%48.0%
50.0% 45.3%44.1%43.9%
43.3% 43.0% 55.0% 51.5%
41.1%40.9%42.0% 40.7%
37.8% 39.1%
37.1% 37.4% 50.0%
48.7% 48.0% 49.1% 46.9% 45.9%
40.0%
44.9%
45.0% 43.0% 43.0%
40.8%40.8% 41.0%
39.6%
30.0%
40.0%
20.0% 35.0%
30.0%
10.0%
25.0%
0.0% 20.0%
1Q11a
2Q11a
3Q11a
1Q12a
2Q12a
4Q12a
1Q13a
3Q13a
4Q13a
2Q14a
3Q14a
4Q11a
3Q12a
2Q13a
1Q14a
4Q14a
FY01a
FY02a
FY03a
FY05a
FY06a
FY07a
FY09a
FY10a
FY12a
FY13a
FY04a
FY08a
FY14a
 The big change in market share during 2014 was a significant increase in the market share
attributable to ‘other’ brands, from 2.0% in FY13A to 10.4% in FY14A (we have allocated 40bp of
rounding error to other, from the headline 10% in UNTR’s FY14A report), which reflected the
aggressive push of new entrants into the market, and particularly in the construction sector, which
likely accounted for UNTR’s disappointing construction sector sales in 2014.
 The major market share casualty, however, was Kobelco, who lost 5.0% of share during 2014.
Hitachi and Caterpillar lost only 1.0% share each, while UNTR lost 1.6%. We note that some of
these market share shifts were driven by the changing composition of market demand during
2014, and especially a lower share of sales to the coal mining industry.
3 March 2015 16
Fig 52 Industry heavy equipment market share (2013) Fig 53 Industry heavy equipment market share (2014)
Others
2.0%
Others
10.4%
Kobelco
17.0%
Kobelco
12.0% Komatsu
Komatsu
39.6%
41.0%
Hitachi
21.0% Hitachi
20.0%
Caterpillar Caterpillar
19.0% 18.0%
Profitability
 Meanwhile, Pama’s heavy equipment gross profitability was relatively strong in 4Q14A given the
backdrop of weak sales, with average gross margins (on gross sales) rising to 18.5% vs. 16.3% in
the pcp, and 16.1% in 3Q14A. A weakening rupiah likely assisted (as we have discussed in past
reports, gross margins are biased upwards on the sale of USD-equipment when the currency is
depreciating), coupled with a larger share of divisional revenues coming from SP&S income.
Fig 54 Trend in gross margins (on gross sales) Fig 55 Divisional net vs gross sales
Rp bn
19.9%
20.0% 18.5% 12,000 Est. internal Pama sales
18.0% 17.9%
16.7% 16.4% 16.3%16.3% 10,0519,985 Net sales
15.7%15.9%15.9% 16.1% 9,467
15.2% 15.2%15.5% 15.3% 10,000 8,985
16.0% 8,639 8,833
2,172 2,816 3,055
8,000 2,146 2,001
12.0% 2,406 6,512
5,775
6,224 6,067 6,302 5,795
6,000 4,997 5,237
1,686 4,724 1,867 4,594
8.0% 1,578 1,937 2,621 1,789
1,282 1,786
4,000 1,558 1,502
6,840 6,233 6,832 7,2957,236 6,929
4.0% 4,826
4,1974,288 3,714 4,435 4,006
2,000 3,445 3,451 3,092
3,167
0.0% 0
1Q11a
2Q11a
4Q11a
1Q12a
2Q12a
4Q12a
1Q13a
2Q13a
4Q13a
1Q14a
2Q14a
4Q14a
1Q11a
2Q11a
3Q11a
4Q11a
1Q12a
4Q12a
1Q13a
2Q13a
3Q13a
4Q13a
1Q14a
4Q14a
3Q11a
3Q12a
3Q13a
3Q14a
2Q12a
3Q12a
2Q14a
3Q14a
 We note, however, that this gross margin trend does not include the impact of falling operating
leverage on operating margins. UNTR’s group SG&A costs rose by 18.3% YoY in 4Q14A, and
while the apportionment is not broken down between heavy equipment and Pama, if we assume
c50% of costs relate to HE (both in 4Q13A and 4Q14A), SG&A costs would have risen from
Rp343bn to Rp406bn YoY. On this methodology, estimated HE operating margins would have
fallen from 10.6% to 9.6%, and operating profits fallen by more than revenue (by 31.4% YoY).
3 March 2015 17
Fig 56 Estimated impact of operating deleverage on HE operating margins

Rp bn 4Q13a 4Q14a YoY
Heavy equipment revenues 6,067 4,594 -24.3%
Heavy equipment gross profit 987 848 -14.1%

Gross margins 16.3% 18.5%
Group SG&A costs 687 813

Assumed HE share 50% 50%
HE SG&A costs 343 406 18.3%
Heavy equipment operating profit 644 442 -31.4%

Operating margins 10.6% 9.6%
Receivables update
 One positive development during 4Q14A was that UNTR’s receivables book showed meaningful
improvement in the percentage of receivables reported as being overdue/impaired. Total group
receivables declined to Rp13.6tr from Rp15.4tr QoQ, or to 93.4 days from 103.4 days, while the
percentage of receivables more than 90 days overdue declined to 13.2% from 17.4% YoY.
Provisioning also increased somewhat – albeit to still low levels of 2.8% of the overall book. These
trends were positive, given what had seemed to be relatively concerning trends in prior periods.
Fig 57 Trend in UNTR’s group receivables Fig 58 Trend in UNTR’s group days receivable
Rp bn Days
18,000 120.0
15,434 101.6 103.4
16,000 14,929
13,587 100.0 91.0 93.4
86.9 89.0
14,000 12,233
12,777
12,141 79.6
12,000 10,947 80.0
10,107 69.2
9,895 64.6
10,000
60.0
8,000
6,000 40.0
4,000
20.0
2,000
0 0.0
4Q12a
1Q13a
2Q13a
3Q13a
4Q13a
1Q14a
2Q14a
4Q14a
4Q12a
1Q13a
2Q13a
3Q13a
4Q13a
1Q14a
2Q14a
3Q14a
3Q14a
4Q14a
Fig 59 % of receivables book overdue Fig 60 % of receivables book value provisioned
<90 days overdue >90 days overdue 3.0% 2.8%

50.0%
43.8% 44.6%
45.0% 42.1% 42.4%
39.5% 2.5%
40.0%
1.9%
35.0% 2.0%
30.0%
1.5%
1.5% 1.4%
25.0% 1.2%
20.0% 17.4%
15.8%
13.2%
1.0%
15.0%
10.1% 10.2%
10.0% 0.5%
5.0%
0.0% 0.0%
FY13a 1Q14a 2Q14a 3Q14a FY14a FY13a 1Q14a 2Q14a 3Q14a FY14a
3 March 2015 18
Updated earnings forecasts

Earnings forecasts
 We summarise our updated earnings forecasts in Fig 61 below. We are forecasting heavy
equipment volumes to be largely flat in FY15E, at 3,458 units (down 1.6% YoY), before enjoying a
modest rebound in FY16E to 4,041 units. Pama’s coal production volume is forecast to rise by
1.5% (UNTR is guiding for flat volumes at present), and for Pama’s average stripping ratio to
decline further to 6.4x from 6.8x in FY14A, driving a further 3.8% YoY reduction in total volumes
handled (c.f. UNTR guidance for a mid-single digit decline in overburden removal in FY15E). We
note that Pama’s coal production has been relatively flat QoQ since 1Q14A, and 4Q14A’s
stripping ratio was at 6.5x, so our volume forecasts are in line with recent trends.
 Margin-wise, we forecast Pama’s gross margins to decline to 23.0% in FY15E from 27.6% in
FY14A, on a normalisation in some costs and a reduction in mining contracting rates. We note that
while this assumption is well below 4Q14A margin levels, it would still represent the second
highest annual margin Pama has ever booked, and is therefore not conservative in our view.
Principal mining losses are forecast to average a cUS$10/MT loss (FY14A US$11/MT loss). We
have also revised our USD/IDR assumption to Rp13.0k moving forward.
 Our revised forecasts represent 10.9% and 17.2% upgrades to our prior FY15E and FY16E
estimates, but are still 10.4% and 23.1% below FY15–16E consensus, respectively.
Fig 61 Updated earnings forecasts

Rp bn FY13a FY14a FY15e FY16e FY15e YoY FY16e YoY
Industry assumptions (est.)

Industry coal volumes 470 494 503 518 2.0% 3.0%
Industry strip ratio (Pama proxy) 8.0x 6.8x 6.4x 6.5x -5.2% 1.6%
Industry overburden removal (bcm m) 3,778 3,333 3,222 3,370 -3.3% 4.6%
Komatsu heavy equip. volumes

Mining 1,784 1,216 1,250 1,500 2.8% 20.0%
Plantations 1,083 811 689 827 -15.0% 20.0%
Construction 992 995 1,150 1,346 15.6% 17.0%
Forestry 344 491 368 368 -25.0% 0.0%
Total heavy equipment sales 4,203 3,513 3,458 4,041 -1.6% 16.9%
Komatsu market share 41.0% 39.6% 38.0% 37.0% -1.6% -1.0%
Market volumes 10,252 8,867 9,099 10,922 2.6% 20.0%
Mining contracting volumes

Coal produced (m MT) 105.1 119.4 121.2 123.6 1.5% 2.0%
Stripping ratio 8.0x 6.8x 6.4x 6.5x -5.2% 1.6%
Overburden removed (m bcm) 845 806 776 803 -3.8% 3.6%
Principal coal sales (m MT) 4.2 5.9 8.0 8.8 34.7% 10.0%
ASPs
Komatsu heavy equipment (Rp m) 1,785 1,755 1,720 1,789 -2.0% 4.0%
Contracting (av US$ per MT/bcm) $3.19 $3.05 $2.94 $2.94 -3.5% 0.0%
Gross margins (vs. net sales)

Heavy equipment 23.8% 24.1% 24.0% 23.2% -0.1% -0.8%
Coal contracting 18.8% 27.6% 23.0% 20.0% -4.6% -3.0%
Coal mining -3.2% -16.5% -16.3% -3.8% 0.3% 12.5%
Principal coal - gross margin/MT -$2.83 -$10.96 -$10.05 -$2.70 -8.3% -73.1%
Other
SG&A costs to revenues 5.4% 6.0% 6.1% 6.1% 1.2% 0.0%
Group EBIT margins 13.2% 16.7% 12.6% 11.6% -24.2% -8.4%
Effective tax rate 27.4% 27.1% 27.0% 26.0% -0.1% -1.0%
USD/IDR 10,404 11,862 13,000 13,000 9.6% 0.0%
Adjusted NPAT 4,981 6,757 5,475 5,527 -19.0% 1.0%
Return on equity 15.7% 15.3% 14.6% 13.8% -0.7% -0.8%
3 March 2015 19
Normalised earnings
 On a normalised basis (normalising Pama’s gross margins to 17.0%), UNTR’s earnings declined
by 10.2% in FY14A to Rp4.1tr, and we are forecasting normalised earnings to decline modestly
further (4.1% YoY) to Rp3.9tr in FY15E. At this stage, we forecast a rebound to Rp4.7tr in FY16E,
but this relies on a significant rebound in the coal price occurring that will significantly lower
principal mining losses, which in reality may well not occur. Our visibility on the outlook for FY16E
therefore remains limited at this point, and a focus on FY15E is more instructive. On our
normalised earnings estimates, UNTR is currently trading at about 20x earnings.
Fig 62 Trend in normalised vs. reported (adj.) earnings

Rp bn FY11a FY12a FY13a FY14a FY15e FY16e
UNTR adjusted earnings 5,760 5,877 4,981 6,757 5,475 5,527
Normalisation adjustments
Pama net revenues 22,418 27,994 31,554 33,493 34,313 35,472
Reported gross margins 16.0% 17.7% 18.8% 27.6% 23.0% 20.0%
Normalised gross margins 17.0% 17.0% 17.0% 17.0% 17.0% 17.0%
Gross margin adjustment 214 -202 -556 -3,544 -2,059 -1,064
Effective tax rate 25.0% 25.0% 25.0% 25.0% 25.0% 25.0%
Normalisation adjustment 161 -151 -417 -2,658 -1,544 -798
Normalised UNTR earnings 5,920 5,726 4,564 4,099 3,931 4,729
Multiples
PER on reported earnings 14.0x 13.7x 16.2x 11.9x 14.7x 14.6x
PER on normalised earnings 13.6x 14.1x 17.7x 19.7x 20.5x 17.1x
Fig 63 UNTR reported vs. normalised earnings Fig 64 Principal coal gross profit per tonne
Rp tr US$/MT
8.00 Reported adj. earnings
$20.00
$14.51
Normalised earnings 6.76 $15.00
7.00 $11.58
5.76 5.92 5.88 5.73 $10.00

6.00 5.47 5.53
4.98 $5.00 $1.48 $1.80
4.56 4.73
5.00
4.15 4.10 $0.00
3.79 3.93
4.00 -$5.00 -$1.34 -$1.95
-$10.00 -$5.76
3.00 -$7.73
-$15.00 -$10.90
2.00 -$13.69
-$20.00
1.00 -$20.16 -$19.42
-$25.00
1Q12a
3Q12a
4Q12a
1Q13a
3Q13a
4Q13a
1Q14a
4Q14a
2Q12a
2Q13a
2Q14a
3Q14a
0.00
FY10a FY11a FY12a FY13a FY14a FY15e FY16e
 Notable is that our current “normalised earnings” estimate does not remove principal mining
losses, which are currently substantial (Rp0.8tr in FY14A, and Rp1.0tr in FY15E, pre tax and
minorities). These losses averaged US$11/MT in FY14A, and we forecast losses to average
US$10/MT in FY15E, but on higher volumes (and we note that our FY15E loss assumption is
currently well below the level of losses being booked in 3Q–4Q14A, so could be too low).
 In theory, it could be argued that we should be removing these losses from our normalised
estimates. However, a key issue here is that not only are these concessions relatively high cost,
but UNTR is using Pama as the contractor for these concessions, and assuming average inter-
divisional earnings of US$6.50/MT are being booked per tonne (in line with Pama’s FY14A
average), there is an active disincentive for UNTR to discontinue production if principal losses are
less than US$6.50/MT. US$6.50/MT is not materially out of line with the US$10/MT in losses we
forecast for FY15E. So, in reality, the extent of the add-back is less than it might seem (i.e. only
about one third of gross losses), and does not change the picture materially.
3 March 2015 20
Valuation
 We summarise our revised valuation in Fig 65 below, which we have raised from Rp16.5k to
Rp20.0k, mostly due to an increase in the multiples we have applied to Pama’s normalised
earnings to reflect reduced risk to the sustainability of normalised margins longer term.
 We have valued UNTR’s heavy equipment division at about 20x FY15E earnings, reflecting the
depressed state of its volumes at present, and the fact that some normalisation in volumes is likely
to occur longer term, as replacement equipment demand ramps up. It is worth remembering,
however, that earnings have been shielded on the way down by SP&S income, and this income
will also correspondingly moderate the extent of any earnings leverage deriving from cyclical
rebound in volumes on the way up as well. Our valuation is equivalent to a PER of about 8–10x on
peak-cycle earnings, so implicitly assumes a PER of about c15x for mid-cycle earnings.
 We have valued Pama at a 12.5x PER of FY14A–15E normalised earnings (using a 17%
normalised gross margin assumption), which is equivalent to 2.2x estimated divisional book value.
Our normalised earnings estimate represents an 18.8% unlevered FY14A ROE for Pama, vs.
34.7% on a reported basis. Longer term, we believe Pama’s ROE will likely average 12–15%.
 We have valued UNTR’s mining concessions at zero, and then valued its net cash and
investments at 1x FY14A book value (although we note that this is arguably aggressive, as excess
cash paid out as a dividend attracts 20% dividend withholding tax for non-domestic investors).
 The implied blended FY14A–15E multiple of our non-coal-concession divisions of 14–15x is below
our normalised PER estimate of c20x outlined earlier in the note because (1) our valuation is
c10% below UNTR’s current share price; (2) UNTR’s normalised earnings include principal mining
losses; and (2) UNTR’s normalised PER absorbs the impact of UNTR holding a material quantity
of cash and investments that are currently yielding a low after tax return on capital. Partly for this
reason, our PT of Rp19.0k is slightly less than our long term valuation of Rp20.0k.
Fig 65 Updated valuation summary

Multiples P/BV ROE Valuation
Division FY11a FY12a FY13a FY14a FY15e FY14a FY14a (Rp bn) Per share
(Rp)
Heavy equipment 8.1x 9.6x 16.3x 18.5x 19.6x 8.7x 42.4% 27,893 7,478
Pama (normalised earnings) 19.5x 15.1x 12.6x 12.5x 12.4x 2.2x 18.8% 39,465 10,580
Pama (on reported earnings) 21.1x 14.2x 11.1x 6.8x 8.3x 2.2x 34.7%
Principal mining 0 0
Combined 12.3x 12.2x 13.9x 14.4x 14.6x 3.2x 67,358 18,058
Net cash/(debt) 6,631 1,778

Investments 1,709 458
Total 75,697 20,293

 We note that we have encountered pushback in the past for valuing Pama’s coal concessions at
zero. However, we actually believe valuing these concessions at zero may be generous, as they
could in fact prove to be a liability long term. As discussed in the prior section, a key issue is that
UNTR is utilising its internal contractor Pama to operate these mines, and margin booked on these
contracting services is being included within UNTR’s Pama divisional earnings/volumes. In
FY14A, these principal mines produced 5.94m MT of coal, representing 5.0% of Pama’s total.
 Consequently, while in theory these mines’ operations could be halted, if this occurs, and
assuming Pama is making the same average margin on these internal contracts as its overall
average of US$6.50/MT in FY14A, Pama would stand to lose almost US$40m in annual gross
profits, whereas these mines booked losses of about US$11/MT in FY14A. Only a net US$4–5/MT
in savings would therefore happen. UNTR will therefore likely be incentivised to continue to
operate these mines long term provided losses are expected to be less than US$6.50/MT. If this
occurs, our valuation in theory should include a negative value for these principal mines.
3 March 2015 21
Fig 66 Trend in principal coal volumes Fig 67 Principal coal gross profit per tonne*
MT (m) US$/MT
2.00 $20.00
1.78 $14.51
1.80 1.65 $15.00 $11.58
1.53 1.52 1.47
1.60 $10.00
1.40 1.28 1.29 1.28
1.20 1.21 1.23 $5.00 $1.48 $1.80
1.20 1.00 1.01 1.05 1.07
$0.00
1.00
-$5.00 -$1.34 -$1.95
0.80 0.61
-$10.00 -$5.76
0.60 -$7.73
-$15.00 -$10.90
0.40 -$13.69
0.20 -$20.00
-$20.16 -$19.42
0.00 -$25.00
2Q11a
3Q11a
4Q11a
2Q12a
3Q12a
1Q13a
2Q13a
3Q13a
4Q13a
1Q14a
2Q14a
4Q14a
1Q11a
1Q12a
4Q12a
3Q14a
1Q12a
3Q12a
4Q12a
1Q13a
3Q13a
4Q13a
1Q14a
4Q14a
2Q12a
2Q13a
2Q14a
3Q14a
Source: Company data, Macquarie Research, March 2015, *3Q13A
reflected change in accounting policy for 9M13A, with depreciation
Source: Company data, Macquarie Research, March 2015 transferred from Pama to principal mining.
EV to tangible capital deployed

 Lastly, we highlight that UNTR is currently trading at a 3.5x multiple of EV to tangible capital
deployed, excluding the on-balance-sheet value of its mining concessions (net of minorities). We
believe this to be a very rich multiple of book for a business of UNTR’s nature.
Fig 68 UNTR EV to tangible capital deployed

Rp bn
Parent company book value 36,660

-Book value of principal mining-related assets 9,149
+Associated minority interests 1,888
Adjusted book value 29,399
-Intangibles 0
Adjusted NTA 29,399
-Net cash 6,631
-Investments 1,709
Net tangible assets deployed 21,060
Market cap (@ Rp22,225) 82,902

-Net cash 6,631
-Investments 1,709
Adjusted market cap/EV 74,563
Adjusted P/NTA 3.5x

 We are believers in mean reversion, and the principal of mean reversion dictates that, in the
absence of strong and durable competitive advantages, companies that are over-earning (or
under-earning) relative to their current capital deployed will generally see their earnings and
returns on capital revert to the mean over time through economic forces that are set in motion by
such a wide variance, including changing customer and competitive activity, and changing
external circumstances (such as industry and operating conditions).
 We see no reason to believe Pama & UNTR will not be subject to these forces – particularly given
the arguments we have outlined about the extent to which Pama appears to be over-earning at
present. It may take time, but economic logic will generally eventually assert itself. With UNTR’s
reported earnings now likely peaking, and with UNTR’s share price having recently undergone a
significant c30% rally, we maintain our Underperform call.
3 March 2015 22
UNITED TRACTORS (UNTR IJ) PRICE: Rp 22,225

Financial year ending 31 December Market cap (bn IDR): 82,902
P&L FY11a FY12a FY13a 1Q14a 2Q14a 3Q14a 4Q14a FY14a FY15e FY16e
Revenue 55,053 55,954 51,012 13,901 13,631 13,277 12,332 53,142 55,764 60,525
-COGS 44,859 45,433 41,496 11,093 10,703 10,380 8,895 41,071 45,309 49,818
Gross profit 10,194 10,521 9,517 2,808 2,928 2,897 3,437 12,070 10,454 10,707
+Construction machinery 5,760 5,324 3,720 1,025 887 845 848 3,605 3,607 3,921
+Mining contracting 3,597 4,961 5,920 1,934 2,160 2,250 2,893 9,237 7,892 7,094
+Principal coal mining 837 236 -123 -151 -119 -197 -305 -772 -1,045 -309
+Elimination 0 0 0 0 0 0 0 0 0 0
Gross profit 10,194 10,521 9,517 2,808 2,928 2,897 3,437 12,070 10,454 10,707
-SG&A expenses 2,578 2,955 2,776 690 760 942 813 3,204 3,402 3,692
+Depreciation 3,426 4,159 4,410 1,070 1,057 1,021 1,042 4,190 3,885 4,162
Operating EBITDA 11,041 11,725 11,151 3,188 3,226 2,976 3,666 13,056 10,938 11,177
-Depreciation 3,426 4,159 4,410 1,070 1,057 1,021 1,042 4,190 3,885 4,162
Operating EBITA 7,615 7,566 6,741 2,118 2,169 1,956 2,624 8,866 7,053 7,015
+Net interest income/(exp) -39 -59 -17 40 29 28 58 154 155 307
+Associate income 28 51 64 12 14 12 17 55 61 67
+Forex gains/(losses) 120 -247 -319 -177 67 77 38 5 0 0
+Asset disposal/reval gains/(losses) 67 119 109 53 28 53 -2,670 -2,536 0 0
+Dividend & other income -6 16 10 23 4 -12 63 77 17 18
Reported NPBT 7,785 7,447 6,587 2,069 2,310 2,114 130 6,622 7,285 7,407
-Taxation 1,885 1,693 1,789 515 607 607 52 1,782 1,967 1,926
-Minority interests & other -1 -26 -35 -23 -5 16 -518 -530 -157 -46
Reported NPAT (parent) 5,901 5,780 4,834 1,576 1,708 1,491 595 5,370 5,475 5,527
+After tax NRI losses/(gains) -141 98 148 93 -70 -93 1,456 1,387 0 0
Adjusted NPAT 5,760 5,877 4,981 1,669 1,638 1,398 2,051 6,757 5,475 5,527
Closing shares on issue (m) 3,730 3,730 3,730 3,730 3,730 3,730 3,730 3,730 3,730 3,730
Weighted average shares (m) 3,579 3,730 3,730 3,730 3,730 3,730 3,730 3,730 3,730 3,730
EPS (adjusted) 1,609 1,576 1,335 448 439 375 550 1,811 1,468 1,482
Payout ratio 39.5% 39.3% 38.6% 0.0% 44.4% 0.0% 112.8% 45.0% 50.0% 55.0%
DPS (ordinary) 635 620 515 0 195 0 620 815 734 815
MULTIPLES FY11a FY12a FY13a 1Q14a 2Q14a 3Q14a 4Q14a FY14a FY15e FY16e
PER 13.8x 14.1x 16.6x 14.9x 13.7x 13.5x 12.3x 12.3x 15.1x 15.0x
EV/EBITDA 6.9x 6.5x 6.8x 6.5x 6.1x 6.1x 5.8x 5.8x 7.0x 6.8x
EV/EBIT 10.0x 10.1x 11.3x 10.3x 9.4x 9.2x 8.6x 8.6x 10.8x 10.9x
Dividend yield 2.9% 2.8% 2.3% 2.3% 2.4% 2.4% 3.7% 3.7% 3.3% 3.7%
P/BV 3.1x 2.8x 2.5x 2.4x 2.4x 2.3x 2.3x 2.3x 2.1x 2.0x
P/NTA 3.1x 2.8x 2.5x 2.4x 2.4x 2.3x 2.3x 2.3x 2.1x 2.0x
GROWTH AND MARGIN METRICS FY11a FY12a FY13a 1Q14a 2Q14a 3Q14a 4Q14a FY14a FY15e FY16e
Revenue grow th (yoy) 47.5% 1.6% -8.8% 11.7% 9.5% 7.0% -10.0% 4.2% 4.9% 8.5%
Gross margins 18.5% 18.8% 18.7% 20.2% 21.5% 21.8% 27.9% 22.7% 18.7% 17.7%
SG&A to sales 4.7% 5.3% 5.4% 5.0% 5.6% 7.1% 6.6% 6.0% 6.1% 6.1%
Operating EBIT m argins 13.8% 13.5% 13.2% 15.2% 15.9% 14.7% 21.3% 16.7% 12.6% 11.6%
Effective tax rate 24.3% 22.9% 27.4% 25.0% 26.4% 28.9% 40.4% 27.1% 27.0% 26.0%
Adjusted NPAT grow th (yoy) 52.1% 2.0% -15.2% 55.1% 38.6% 9.8% 41.4% 35.6% -19.0% 1.0%
Adjusted EPS grow th 41.4% -2.1% -15.2% 55.1% 38.6% 9.8% 41.4% 35.6% -19.0% 1.0%
Return on equity 26.9% 20.7% 15.7% 18.6% 19.6% 16.8% 6.5% 15.3% 14.6% 13.8%
Heavy equip. gross margins (vs. net sales) 21.2% 24.0% 23.8% 23.1% 22.1% 24.5% 27.4% 24.1% 24.0% 23.2%
Mining contracting gross margins (vs. net sales) 16.0% 17.7% 18.8% 24.0% 26.5% 25.2% 34.5% 27.6% 23.0% 20.0%
KEY VOLUME ASSUMPTIONS FY11a FY12a FY13a 1Q14a 2Q14a 3Q14a 4Q14a FY14a FY15e FY16e
Kom atsu heavy equipm ent volum es 8,467 6,202 4,203 1,211 996 775 531 3,513 3,458 4,041
Grow th (yoy) 56.7% -26.8% -32.2% -4.8% -15.6% -8.9% -41.0% -16.4% -1.6% 16.9%
Komatsu market share 48.8% 43.0% 41.0% 42.3% 37.1% 40.7% 37.4% 39.6% 38.0% 37.0%
Heavy equipment gross margins 21.2% 24.0% 23.8% 23.1% 22.2% 24.5% 27.4% 24.1% 24.0% 23.2%
Coal production (contracting, m MT) 86.8 94.4 105.1 29.1 30.0 30.3 30.0 119.4 121.2 123.6
Grow th (yoy) 11.6% 8.8% 11.3% 21.8% 14.5% 7.1% 12.8% 13.6% 1.5% 2.0%
Stripping ratio 9.2x 9.1x 8.0x 7.0x 6.6x 6.8x 6.5x 6.8x 6.4x 6.5x
Overburden removal (m bcm) 796.4 855.5 844.9 204.5 199.3 207.2 195.4 806.4 775.6 803.5
Overburden grow th (yoy) 22.4% 7.4% -1.2% 1.7% -7.1% -7.4% -4.9% -4.6% -3.8% 3.6%
Mining contracting gross margins 16.0% 17.7% 18.8% 24.0% 26.5% 25.2% 34.5% 27.6% 23.0% 20.0%
Coal sales (principal coal mining, m MT) 4.5 5.6 4.2 1.6 1.8 1.2 1.3 5.9 8.0 8.8
Coal sales - realised price (US$/MT) $107.64 $90.18 $89.90 $72.49 $71.28 $63.29 $55.09 $66.24 $61.75 $71.25
USD/IDR 8,781 9,384 10,404 11,820 11,616 11,756 12,255 11,862 13,000 13,000
BALANCE SHEET FY14a FY15e FY16e FY17e CASHFLOW FY14a FY15e FY16e FY17e
Assets deployed NPAT (incl. m inorities) 5,370 5,475 5,527 6,158

+Net w orking capital 7,992 9,925 10,581 11,765 +D&A 4,190 3,885 4,162 4,330
+Fixed assets 23,530 22,963 22,775 23,227 -Capex 3,063 3,317 3,974 4,782
+Intangible assets 0 0 0 0 -Incr. in w orking cap. 1,303 1,969 723 1,291
+Other - net -1,733 -1,818 -1,973 -2,223 -Net acquis/(divest) 701 0 0 0
Total assets deploy. 29,790 31,069 31,383 32,769 +Other accruals mov. 1,389 -95 109 280
+Net cash/(debt) 6,631 7,240 9,488 10,888 Free cash flow 5,882 3,979 5,101 4,696
+Investments & associates 2,156 2,216 2,283 2,356 +Opening net cash/(debt) 3,006 6,631 7,240 9,488
-Minority interests 1,917 1,760 1,713 1,710 +Equity issues less divs. -1,995 -3,370 -2,853 -3,296
Parent equity 36,660 38,765 41,440 44,302 +Other/recon -262 0 0 0
Net tangible assets 36,660 38,765 41,440 44,302 Closing net cash/(debt) 6,631 7,240 9,488 10,888
Source: Company data, Macquarie Research March 2015
3 March 2015 23
Macquarie Quant View

The quant model currently holds a marginally positive view on United Tractors. Attractive
Displays where the
The strongest style exposure is Valuations, indicating this stock is under-priced in
company’s ranked based
the market relative to its peers. The weakest style exposure is Profitability,
Fundamentals
on the fundamental
indicating this stock is not efficiently converting its investments to earnings as
consensus Price Target
proxied by ratios such as ROE, ROA etc.
and Macquarie’s
93/305 Quantitative Alpha model.
The rankings are
Global Alpha Model displayed relative to the
Sector Rank sector and country.
Quant
% of BUY recommendations 30% (3/10)
Rank within Country Rank within Sector
Number of Price Target downgrades 0
Number of Price Target upgrades 1
Macquarie Alpha Model ranking Factors driving the Alpha Model

A list of comparable companies and their Macquarie Alpha model score For the comparable firms this chart shows the key underlying styles and their
(higher is better). contribution to the current overall Alpha score.
Arwana Citramulia 1.0 Arwana Citramulia
United Tractors 0.5 United Tractors
AKR Corporindo -0.1 AKR Corporindo
Express Transindo Utama T… -0.3 Express Transindo Utama T…
-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 -100% -80% -60% -40% -20% 0% 20% 40% 60% 80% 100%
Valuations Growth Profitability Earnings Price Quality
Momentum Momentum
Macquarie Earnings Sentiment Indicator Drivers of Stock Return

The Macquarie Sentiment Indicator is an enhanced earnings revisions Breakdown of 1 year total return (local currency) into returns from dividends, changes
signal that favours analysts who have more timely and higher conviction in forward earnings estimates and the resulting change in earnings multiple.
revisions. Current score shown below.
Arwana Citramulia
Arwana Citramulia -0.9
United Tractors
United Tractors 0.2
AKR Corporindo 0.0

AKR Corporindo
Express Transindo Utama T… -1.2

Express Transindo Utama T…
-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50%
Dividend Return Multiple Return Earnings Outlook 1Yr Total Return
What drove this Company in the last 5 years How it looks on the Alpha model
Which factor score has had the greatest correlation with the company’s A more granular view of the underlying style scores that drive the alpha (higher is
returns over the last 5 years. better) and the percentile rank relative to the sector and country
⇐ Negatives Positives ⇒
Normalized Percentile relative Percentile relative
Working Capital Inc. 28% Score to sector(/305) to country(/36)
CPS Growth FY1 28%

Alpha Model Score 0.48
Valuation 0.34
IRR Dividend Disc. Model 23% Growth -0.04
PEG Ratio Inverted 23%
Profitability -0.54
Earnings Momentum -0.02
FCF Yield FY0 -22% Price Momentum -0.23
Change in Cash FY0 -23% Quality 0.13
Capital & Funding 0.33
Merton Score -23% Liquidity -0.81
Cash to Total Assets FY0 -24% Risk -0.09
Technicals & Trading -0.50
-30% -20% -10% 0% 10% 20% 30%
0 50 100 0 50 100
0 0 1 1
.
For more details on the Macquarie Alpha model or for more customised analysis and screens, please contact the Macquarie
Global Quantitative/Custom Products Group (cpg@macquarie.com)
3 March 2015 24
Important disclosures:
Recommendation definitions Volatility index definition* Financial definitions
Macquarie - Australia/New Zealand This is calculated from the volatility of historical All "Adjusted" data items have had the following
Outperform – return >3% in excess of benchmark return price movements. adjustments made:
Neutral – return within 3% of benchmark return Added back: goodwill amortisation, provision for
Underperform – return >3% below benchmark return Very high–highest risk – Stock should be catastrophe reserves, IFRS derivatives & hedging,
expected to move up or down 60–100% in a year IFRS impairments & IFRS interest expense
Benchmark return is determined by long term nominal – investors should be aware this stock is highly Excluded: non recurring items, asset revals, property
GDP growth plus 12 month forward market dividend speculative. revals, appraisal value uplift, preference dividends &
yield minority interests
Macquarie – Asia/Europe High – stock should be expected to move up or
Outperform – expected return >+10% down at least 40–60% in a year – investors should EPS = adjusted net profit / efpowa*
Neutral – expected return from -10% to +10% be aware this stock could be speculative. ROA = adjusted ebit / average total assets
Underperform – expected return <-10% ROA Banks/Insurance = adjusted net profit /average
Medium – stock should be expected to move up total assets
Macquarie First South - South Africa or down at least 30–40% in a year. ROE = adjusted net profit / average shareholders funds
Outperform – expected return >+10% Gross cashflow = adjusted net profit + depreciation
Neutral – expected return from -10% to +10% Low–medium – stock should be expected to *equivalent fully paid ordinary weighted average
Underperform – expected return <-10% move up or down at least 25–30% in a year. number of shares
Macquarie - Canada
Outperform – return >5% in excess of benchmark return Low – stock should be expected to move up or All Reported numbers for Australian/NZ listed stocks
Neutral – return within 5% of benchmark return down at least 15–25% in a year. are modelled under IFRS (International Financial
Underperform – return >5% below benchmark return * Applicable to Asia/Australian/NZ/Canada stocks Reporting Standards).
only
Macquarie - USA
Outperform (Buy) – return >5% in excess of Russell Recommendations – 12 months
3000 index return Note: Quant recommendations may differ from
Neutral (Hold) – return within 5% of Russell 3000 index Fundamental Analyst recommendations
return
Underperform (Sell)– return >5% below Russell 3000
index return
Recommendation proportions – For quarter ending 31 December 2014

AU/NZ Asia RSA USA CA EUR
Outperform 51.80% 58.06% 45.07% 44.42% 60.54% 46.81% (for US coverage by MCUSA, 5.29% of stocks followed are investment banking clients)
Neutral 31.80% 27.37% 30.99% 50.10% 35.37% 33.51% (for US coverage by MCUSA, 3.08% of stocks followed are investment banking clients)
Underperform 16.39% 14.57% 23.94% 5.48% 4.08% 19.68% (for US coverage by MCUSA, 0.44% of stocks followed are investment banking clients)
UNTR IJ vs JSX, & rec history
(all figures in IDR currency unless noted)
Note: Recommendation timeline – if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Source: FactSet, Macquarie Research, March 2015
12-month target price methodology

UNTR IJ: Rp19,000 based on a PER methodology
Company-specific disclosures:
Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/disclosures.
Date Stock Code (BBG code) Recommendation Target Price
01-Nov-2014 UNTR IJ Underperform Rp16500
26-Aug-2014 UNTR IJ Underperform Rp20000
13-May-2014 UNTR IJ Neutral Rp21500
11-Nov-2013 UNTR IJ Neutral Rp17500
24-Jun-2013 UNTR IJ Underperform Rp12500
29-Apr-2013 UNTR IJ Underperform Rp15000
02-Mar-2013 UNTR IJ Neutral Rp19000
Target price risk disclosures:
UNTR IJ: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include
geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global
economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates,
foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to
manage certain of these exposures.
Analyst certification:
The views expressed in this research accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the
compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this research. The
analyst principally responsible for the preparation of this research receives compensation based on overall revenues of Macquarie Group Ltd ABN 94
122 169 279 (AFSL No. 318062) (MGL) and its related entities (the Macquarie Group) and has taken reasonable care to achieve and maintain
independence and objectivity in making any recommendations.
General disclaimers:
Macquarie Securities (Australia) Ltd; Macquarie Capital (Europe) Ltd; Macquarie Capital Markets Canada Ltd; Macquarie Capital Markets North America
Ltd; Macquarie Capital (USA) Inc; Macquarie Capital Securities Ltd and its Taiwan branch; Macquarie Capital Securities (Singapore) Pte Ltd;
3 March 2015 25
Macquarie Securities (NZ) Ltd; Macquarie First South Securities (Pty) Limited; Macquarie Capital Securities (India) Pvt Ltd; Macquarie Capital Securities
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INDONESIA

4Q14A result summary

Fig 1 4Q14A result summary

30.0% 27.9% 25.0%

Trends in USD earnings

Fig 8 UNTR’s earnings performance expressed in USD

Fig 11 Divisional result summary

Net sales breakdown

Revenue growth (yoy)

Gross margins (net sales)

Gross profit breakdown

17,500 3,500 2,897

Fig 16 Pama result summary

Growth rates (YoY)

Fig 19 Pama result summary – converted to USD

USD/IDR 9,692 9,802 10,649 11,474 11,820 11,616 11,756 12,255

Volume picture remains soggy

11.0x Cost cutting and "high grading" 10.0x 9.2x 9.1x

Cost savings appear to have been the key driver

Fig 26 Trend in Pama’s COGS

USD/IDR 9,085 8,781 9,384 10,404 11,862

Unclear how sustainable cost reductions are

Will Pama be required to pass these cost savings through to customers?

We continue to believe Pama to be over-earning

m bcm/m US$ US$/bcm

How much might Pama’s margins decline

Revenues $3,033 $2,824 $2,739 -3.0%

Gross profit $569 $779 $485 -37.8%

Fig 36 FY15E gross margin outlook on benign cost normalisation scenario

Revenues $3,033 $2,824 $2,739 -3.0%

Gross profit $569 $779 $630 -19.0%

Insourcing and discontinuity risk

Adaro Others Adaro

Giving credit where it is due

Normalising Pama’s earnings trend

Fig 45 Heavy equipment divisional summary

Net revenues (Rp bn)

Volumes and market share

Fig 56 Estimated impact of operating deleverage on HE operating margins

Heavy equipment revenues 6,067 4,594 -24.3%

Heavy equipment gross profit 987 848 -14.1%

Group SG&A costs 687 813

Heavy equipment operating profit 644 442 -31.4%

Fig 59 % of receivables book overdue Fig 60 % of receivables book value provisioned

<90 days overdue >90 days overdue 3.0% 2.8%

Updated earnings forecasts

Fig 61 Updated earnings forecasts

Industry assumptions (est.)

Komatsu heavy equip. volumes

Mining contracting volumes

Gross margins (vs. net sales)

Fig 62 Trend in normalised vs. reported (adj.) earnings

UNTR adjusted earnings 5,760 5,877 4,981 6,757 5,475 5,527

Normalised UNTR earnings 5,920 5,726 4,564 4,099 3,931 4,729

5.76 5.92 5.88 5.73 $10.00

Fig 65 Updated valuation summary

Combined 12.3x 12.2x 13.9x 14.4x 14.6x 3.2x 67,358 18,058

Net cash/(debt) 6,631 1,778

Total 75,697 20,293

EV to tangible capital deployed

Fig 68 UNTR EV to tangible capital deployed

Parent company book value 36,660

Market cap (@ Rp22,225) 82,902

Adjusted P/NTA 3.5x