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BANPU

Weak recovery

Banpu Plc

- 1Q14 profit to make yearly new high

We project BANPU’s 1Q14 net profit at B1.25bn, leaping 93.9%qoq and

making a new high in 2014, thanks to the following positive factors: 1) Share

of profit from BLCP (BANPU holding 50percent stake) is expected to return to

normal at B500m after a factory underwent a one-month maintenance

shutdown in 4Q13. 2) Gross profit margin from Centennial (Australia) is

expected to rise from 24% in 4Q13 to 28% in 1Q14, as no extraordinary

expense recognized in 4Q13 would be booked in 4Q13. Coal price and sales

volume is projected to stay close to 4Q13 at US$70.5/ton and 3.7 million

tons, respectively. 3) B457m extraordinary profit from coal swap would be

booked in 1Q14. Profit from ITMG (Indonesia) is expected to drop. As a result

of low season (rainy season in Indonesia), sales volume is projected to drop

by 6.5%qoq to 7.2 million tons, while coal price is would stay close to 4Q13

at US$70.6/ton. However, thanks to cost reduction strategy, its gross profit

margin is expected to stay at 35%. Meanwhile, 1Q14 net profit from coal

mine in China (Gaohe) is likely to decline, as coal would be sold to steel

factories in China at lower price

- To decline in 2Q14-4Q14

We maintain our FY2014-2015 earnings forecast. 2Q14 net profit is projected

to drop qoq due to the following negative factors: 1) Coal price usually has a

lag-time from the spot price of coal by three to six months. Thus, 2Q14-4Q14

coal price is likely to drop because it would reflect weak spot price of coal

from late-2013 to early-2014. 2) Mandalong mine would be closed for 20 day

due to the longwall move, thus pressing 2Q14-4Q14 sales volume. 3)

Extraordinary profit from coal swap would not be as large as in 1Q14. We

project 2H14 net profit to fall from 1H14 due to the following negative

factors: 1) Coal price is expected to drop. 2) Mandalong mine would be

closed for 20 day due to the longwall move from late-3Q14 to early-4Q14. 3)

BLCP’s factory would undergo a one-month maintenance shutdown in 4Q14.

Still, FY2014 net profit is projected to grow by 20.6%yoy.

- Focus on long-term investment

We derive FY2014 fair value (DCF) at B32. We recommend buying, focusing

on long-term investment. BANPU has possibly passed its lowest. Its PBV of

0.9x is lower than the sector’s average of 1.3x. However, Hongsa power plant

court case can be a pressuring factor as long as the final judgment is not

made. BANPU’s manager revealed that the official judgment is not likely to be

announced in the next few months


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