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On Friday, analysts at Morgan Stanley (NYSE:MS) downgraded United Tractors Tbk PT (UNTR:IJ) (OTC: PUTKY) stock rating from Overweight to Underweight, significantly reducing the price target to IDR21,400.00 from the previous IDR34,800.00. The $5.1 billion market cap company, currently trading at $28.09, has seen its shares decline nearly 20% year-to-date. The downgrade reflects concerns over the company’s earnings potential in light of rising pressure across its coal and equipment supply chain.
United Tractors, during its earnings call, reported that customers are increasingly seeking discounts on mining services and adjustments to stripping ratios. Despite these challenges, the company maintains a healthy 4.5% dividend yield and trades at an attractive P/E ratio of 4.38. Morgan Stanley analysts interpret these developments as early indicators of a potential earnings down cycle for the company, reminiscent of the one experienced in 2015. According to InvestingPro analysis, the stock appears undervalued based on its Fair Value estimates.
The analysts pointed out that Indonesia’s coal cash costs are hovering around $55-60 per ton, which is perilously close to the current coal price of $67 per ton. This narrow margin puts producers in the highest-cost quartile at risk, especially as global LNG prices are expected to decline from their peaks in 2026. The anticipated drop in LNG prices could exert additional downward pressure on United Tractors’ coal earnings, which are currently estimated to be 50% above the mid-cycle level. InvestingPro data reveals 8 additional key insights about United Tractors’ financial health and market position.
To account for these emerging challenges, Morgan Stanley has revised its pricing, fees, and margin estimates across United Tractors’ various business segments, including coal mining, coal contracting, and equipment. The revisions aim to more accurately reflect the rising difficulties within Indonesia’s coal supply chain. Nevertheless, the company maintains strong financial health with a current ratio of 1.54 and holds more cash than debt on its balance sheet, providing some cushion against industry headwinds.
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