Banpu

No provision will be set for Hongsa despite court ruling, says BANPU
Excluding damage payment of B31bn from 2012's forecast, earnings revert to norm profit
Reiterate HOLD. Fair value is B507.04/share

According to BANPU's notification to the SET and the urgent analyst meeting

on 1 October regarding the Hongsa case, BANPU said it would not set aside

provision against the Civil Court's order for the company to pay

compensation of B31bn to Mr. Siva Nganthavee and his affiliated companies

(Mr.Siva demanded B63bn in damages since 3 July 2007 claiming that BANPU

entered into a joint venture with his group to acquire information about a

coal mine concession and the feasibility study of a lignite coal power project

in Hongsa of Laos (Hongsa project) but the company gave false information

to the Laotian government, resulting in Vientiane ending the agreements it

had with Mr.Siva's group in favor of BANPU). The reason given is that the

company's board and management as well as legal counselor and accounting

advisor are confident, based on the matter of facts and law, that it would win

its appeal against Siva's group. The appeal is scheduled to be made by 22

October 2012, but when the ruling will come out still cannot be defined. In

terms of dividend payment, the company confirmed to still pay dividend from

norm earnings. Dividend payment for 1H12 would be B9/share or dividend

payment ratio of 50%.


Excluding damage payment of B31bn from 2012's

forecast, earnings revert to norm profit

We revise up our net profit forecast for FY2012 to reflect BANPU's official

notification to the SET that it would not set provision for the damage

payment and that it would explain the remark in the 3Q12's financial

statement. Accordingly, we exclude the provision of B31bn (one-time

expense) from the forecast, resulting in FY2012's earnings reverting to a

norm profit of B11.7bn. However, the court's ruling shows no effect on the

Hongsa project as the project is still under a responsibility of Hongsa Power

company which is a joint venture separated from BANPU. Construction of the

project will proceed as planned (30% has been finished so far), and a

commercial run is expected in 2015.


Reiterate HOLD. Fair value is B507.04/share

We maintain fair value at B507.04/share, based on a conservative method to

reflect the worst case scenario that there might be the expense of B31bn

from the court's ruling. The fair value will drop to a normal level if BANPU

really win its appeal. At the same time, we reiterate HOLD. The fall of share

price in the past week has partially reflected the court's ruling. Moreover,

considering fundamental factors, overall coal industry has already had limited

downside, so there should be a rebound of coal price according to several

stimulus packages.