Heavy Equipment Sector Outlook

Demand still under a dark cloud

Based on our industry data source, Indonesian heavy equipment saw a 38% YoY decline to 4,480 units in 7M15 from 7,230 units in 7M14, due mainly to lower sales volume to mining and agriculture sector as continued lower coal prices has forced miners to scale back production. The sales of big-to-giant sized excavators and dump truck, which are typically used to do digging and dumps overburden declining by 48 – 58% compared to the same period last year. It is the same with smaller excavators where its sales also declining but at slower pace.

Expecting a rebound in heavy equipment sales next year

We expect small increase in national heavy equipment sales to 8,141 units for 2016 (+6% YoY) driven by higher construction machinery volume (+16% YoY to 2,849 units) on growing demand from infrastructure project. We expect share of heavy equipment sales to construction sector to expand from 32% in 2015F to 35% in 2016F. SOE contractors currently rent most of their heavy equipment from third parties. Industry sales portion to mining is equipment is forecast to decline by 1% from 29% in 2015F to 28% in 2016F (2,279 units) on continued gloomy coal prices.

Komatsu to remain the largest brand despite losing share

Komatsu (sold by UNTR) is expected to see lower market share from 37.5% in 2015F to 36.7% in 2016F on lower mining machinery sales which has been its dominant product. We only cover UNTR in the heavy equipment space with TP of Rp 20,000 and hold rating due to limited upside potential and unfavorable coal price outlook which will affect around 80% of its total revenue.