Q4 2012's profit to decrease qoq. Cut 2013-2014's forecast to reflect coal price HOLDBanpu Plc (BANPU)
Q4 2012's profit to decrease 21.4%qoq…decreasing selling price is key pressure
We estimate 4Q12's net profit at B1.78bn, down 21.4%qoq as a result of
a decrease in average coal selling price by 4.4%qoq on average to
US$84/ton in Indonesia and US$65/ton in Australia following BJI Index
which has been declining over the past 3-6 months. Coal sale volume in
Australia is projected to decrease by 23.1%qoq to 3.25 million tons due
to Longwall mining move. Consequently, despite compensation from
increasing coal sale volume in Indonesia to 8 million tons (20.8%qoq
growth), the company's profit from the coal business will remain weak.
For the power business in 4Q12, share of profit from BLCP (BANPU holds
50percent stakes) would plunge by 85.2%qoq to only B101m from a 2-month
maintenance shutdown. Moreover, selling and administrative expenses
in the 4th quarter of every year are usually higher than other quarters
because of extraordinary expenses such as employee bonus. In terms of
extraordinary items, hedge gain is projected to decrease by 70.8%qoq
to only B155m in 4Q12, but there will also be extraordinary profit of
B250m from the hedge against Australian and US Dollar exchange rate
for Centennial project. Consequently, overall net profit in FY2012 would
stand at B9.56bn, down 52.3%yoy, in line with our current forecast.
Cut coal price assumption in 2013. 2013's profit to decline 18%yoy
We revise down our profit forecast since 2013 onward; average coal
selling price assumption in 2013 is cut to US$80/ton from US$90/ton in
order to reflect current coal price which has dropped to US$90/ton on
average (BJI). BANPU's coal selling price normally has a 10-15%
discount from BJI. Moreover, BANPU has entered more than 70% of its
coal sale in Indonesia into a contract in 2013 with average selling price
of around US$80-85/ton. However, average coal selling price
assumption since 2014 onward would be US$85/ton (from US$90/ton).
The coal price is projected to recover in 2H13 from increasing demands
following the economic rebound. As a result, 2013-2014's net profit
would decrease 22.9% and 12.7percent from the current forecast as shown in
the table, so profit in FY2013 would drop by 18.1%yoy.
Hold. No supporting factors in next 1-3 months
Under the new forecast, fair value at end-2013, DCF, is B492.48/share
(from B515.27). We reiterate our recommendation to only hold the stock
as there is still not new supporting factor in the next 1-3 months.
However, the share price has previously declined to reflect the negative
factors. In addition, fundamentally, the coal industry now has limited
downside because the current coal price is already close to production
cost of coal producers in many countries such as the US, Russia, and
Australia so coal supply might decrease and the price will thus rally
again in 2H13.