Banpu

Q4 2012's profit to decrease qoq. Cut 2013-2014's forecast to reflect coal price HOLD

Banpu 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.