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Published on March 12, 2008

Company: Banpu

Business description: The company is the largest coal producer and distributor in Thailand. It also has considerable coal mining interests in Indonesia and China. Banpu is Indonesia's fourth-largest coal producer, with full production capacity of about 19 million tonnes a year from four concessions at Indominco, Jorong, Kitadin and Trubaindo.

The company has diversified its business into coal-fired power plants through two affiliates in Thailand and two wholly owned subsidiaries and a firm in which it holds a 70-per-cent stake in China. The company's income ratio from coal and power plants last year was 36:64.

It also holds a major stake in the Hongsa lignite power project in Laos, which has big future potential.

Earnings: Banpu's net profit rose from Bt2.05 billion in 2003 to Bt2.64 billion in 2004 and Bt5.56 billion in 2005. It suffered a drop in net profit to Bt3.61 billion in 2006 before recovering to Bt6.65 billion last year.

Dividends: The company offered dividend yields of 2 per cent in 2003, 2.62 per cent in 2004, 4.2 per cent in 2005, 6.87 per cent in 2006 and 1.87 per cent last year. It has announced an interim dividend of Bt4.75 a share for last year's second half operations and its excluding-dividend sign is posted today.

2008 business plan in brief: Banpu's management expects to sell about 20 million tonnes of coal this year, mostly from Indonesia. It is expecting to sell 500,000 tonnes of coal from its mines in Thailand, but these will be exhausted this year. The company plans to continue its focus on coal and power plants and hopes to make its presence felt in the alternative energy business, including biodiesel production and wind-power plants.

ADVANTAGES: A sustained rise in the spot market price for coal, supported by persistently strong demand, bodes well for Banpu. Given a very strong financial position with a net debt-to-equity ratio of only 0.14 and about Bt13 billion cash in hand, the company can afford to explore new business opportunities. The government's policy to diversify its dependence on natural gas to other energies will also give Banpu a boost.

Threats: Banpu's earnings from coal-fired power plants are expected to weaken in 2008 because record high prices for coal have put pressure on the company's earnings from its coal-fired power plants in China. Moreover, the BLCP power plant at Map Ta Phut, in which it holds a half share, is expected this year to run at less than last year's 87-per-cent of full capacity.

China's coal-fired power plants have so far passed on 70 per cent of the higher cost of oil, but recent spikes in oil prices might erode Banpu's coal mining margins because oil accounts for about 30 per cent of its operating costs.

Appreciation of the baht will also hurt Banpu's earnings as its income is quoted in US dollars.

WHAT ANALYSTS SAY:

Kim Eng Securities (Thailand): Take profit.

The broker has estimated a fair value for Banpu's stock at Bt456 each. It forecasts that the company's 2008 net profit will surge to Bt7.65 billion, based on an assumption that the average selling price for coal will increase by 34 per cent year on year to US$55 (Bt1,700) per tonne.

It says Banpu's sales volume this year is expected to be limited to last year's level of 19 million tonnes by flooding problems in Indonesia.

Tisco Securities: Buy.

The broker has set a 12-month target for Banpu's stock of Bt152 each, based on the sum-of-part method. It expects the average selling price for Banpu's coal this year to jump by 50 per cent, outpacing the rise in production costs and benefiting its margins. Supported by the bullish view of the Deutsche Bank's commodity team for an average coal price of $120 per tonne this year and $110 per tonne next year, the broker raised its coal-price assumption for Banpu to $64 per tonne this year and $80 per tonne next year. The price gap seems narrower next year because of repricing of Banpu's contracts. Seventy per cent of Banpu's output this year is locked at an average price of $53 per tonne, while the rest will be based on spot prices.

Despite the higher coal-price assumption, the broker has cut its estimate for Banpu's earnings this year by 9 per cent, in order to reflect a higher exchange rate assumption of Bt31.50 to the dollar.

Oranan Paweewun

The Nation