Banpu

Q4 2012F: May weaken both QoQ and YoY Neutral

Banpu Plc

Weak coal price continued to depress profit. We believe the weaker coal price in

4Q12F continued to depress net profit, which is likely to fall 27% QoQ and 53% YoY to

Bt1.66bn. Based on management guidance we estimate average selling price of its

Indonesian coal in 4Q12F at US$82/t, down from US$88/t in 3Q12. The price for

Australian coal also fell QoQ but less steeply since 60% of its coal is sold on the

domestic market at more stable prices. Assuming 4Q12F comes out as expected, fullyear

profit could be 5% below our projection and 3% below market consensus.

Sales volume of Indonesian coal could exceed target. Management said sales

volume from Indonesian coal mines could exceed the 26mt target since weather was

supportive in the quarter, allowing it to boost production and sales to 8mt from

6.62mt in 3Q12. Demand was also strong in 4Q12, largely from China and India. This

illustrates that demand for coal remains solid but problems on the supply side

continue to depress selling price. Hence margin could continue to weaken despite its

efforts to reduce production cost.

Lower equity income from BLCP. We also expect lower equity income to weaken

net profit QoQ as BLCP underwent a two-month maintenance shutdown in the

quarter, and this is a primary source of equity income.

Coal price outlook. Management remains cautious about coal price outlook although

coal supply issues such as coal exports from the US to the seaborne market have

eased, and believe it may take several months before the market becomes balanced

again. Management sees US$85/t as a strong support level for coal price since this is

the cash cost of several coal mines. Note that BANPU's cash cost was US$64/t for

Indonesian coal and US$75/t for Australian coal.

Target sales volume for 2013F. BANPU maintains its target coal sales volume for

Indonesian coal at 29mt in 2013F, up from 27.2mt in 2012. The company has priced

>50% of its coal shipments for 2013F, with 30% at a fixed price of ~US$80/t and 30%

linked to the price index. Most of the remainder will be priced in April as it will be sold

to Japanese power plants, which normally settle the annual price in April.

Earnings revision. We have revised down our earnings estimate for 2013F by 20% to

reflect a lower coal price assumption for its Indonesian coal from US$88/t to US$83/t.

Neutral rating reaffirmed. We have also cut our TP to Bt440/share to reflect the

reduction in forecast earnings. We maintain our Neutral rating although upside to our

TP looks attractive given the uncertainty of the court case with its former JV partner in

the Hongsa power project. Other downside risks are further weakening of coal price

and further reduction of its strip ratio to affect its coal reserves.