On Friday, HSBC updated its assessment of United Tractors Tbk PT (UNTR:IJ) (OTC: PUTKY), increasing the price target to IDR27,700.00, up from the previous IDR26,600.00, while reiterating a Hold rating on the stock. The adjustment was based on revised net profit estimates for the years 2024-25.
The bank forecasts a 19% year-on-year decline in net profit for United Tractors in 2024. Despite this anticipated decrease, HSBC's valuation of the company's coal-related business remains pegged to a price-to-earnings (PE) multiple of 5.8 times the estimated earnings for 2024, which has not changed.
In addition to the coal segment, HSBC employs a discounted cash flow (DCF) methodology to value United Tractors' gold and power business. The stake in NIC (NASDAQ:EGOV), a related entity, is valued based on a three-month average share price. According to the firm, these valuation methodologies for the non-coal segments have remained consistent.
The revised price target reflects a 5-7% increase in HSBC's net profit estimates for United Tractors for the next two years. The bank's analysis suggests that, based on the new target price, United Tractors' shares offer a potential upside of approximately 11%.
At the time of the report, United Tractors was trading at an estimated dividend yield of 7.2% for the year 2024, as per HSBC's projections. This dividend yield is a factor investors may consider when assessing the stock's potential return relative to its price.
InvestingPro Insights
United Tractors Tbk PT (UNTR:IJ) (OTC: PUTKY) has garnered attention with its compelling financial metrics that echo HSBC's recent analysis. With a market capitalization of $5.78 billion and trading at an attractive P/E ratio of just 4.4 for the last twelve months as of Q4 2023, the company stands out for its value proposition. This low earnings multiple suggests that the stock could be undervalued relative to its earnings, backing HSBC's decision to increase the price target.
Investors seeking income-generating assets might be drawn to United Tractors' significant dividend yield, which was projected to be 23.59% for the year. This impressive dividend performance is bolstered by the company's history of maintaining dividend payments for 20 consecutive years, an InvestingPro Tip that highlights the firm's commitment to shareholder returns. Additionally, the company's solid financial footing is evidenced by its ability to cover interest payments with its cash flows, a reassuring sign for debt sustainability.
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