Banpu should benefit from Hunnu acquisition
Credit Suisse maintains its "outperform" rating to Banpu Plc, following the Australian dollar acquisition of Mongolia's Hunnu Coal Ltd.
Banpu announced a tender offer for the remaining 87.6 per cent stake at the cost of A$423 million. Combined with the 12.4 per cent stake at the cost of A$1.5 per share, the total cost for the 100 per cent stake is A$468 million, "equivalent to the enterprise value per resource of US$0.53 per tonne, lower than the valuation of any Mongolia-based listed companies in Hong Kong of between US$3-US$19 per tonne".
"We maintain our outperform rating. Its balance sheet could handle the acquisition costs given the proceed of US$669 million from sale of Daning in the first quarter. The deal is too small to make us change our positive view on Banpu," the house said.
Banpu expects production at Hunnu to ramp up to 3-5 million tonnes in 2015 and will provide more detailed guidance after November when the deal is completed. Banpu said that the costs related to Hunnu will be capitalised and not affect its bottom line. The management also expects its net debt to equity ratio to rise from 0.7 time to 0.8 time.
Credit Suisse noted that the Hunnu's acquisition comes sooner than expected but suggests that Banpu is eager to take the development risks of the Mongolian resources before acquisition price gets too expensive. To Banpu, the size of this acquisition is close to its acquisition cost into China in 2008 (Daning and Gaohe) but much lower than the cost of Centennial Coal (US$2.5 bn).
It noted that capital expenditure for Mongolia should be less than US$500 million with priority to develop two mines called Tsant Uul and Unst Khudag, which are located around 200 km from the border with China. Main transportation route to the border is the public highway. Coal sold is likely to be unwashed, at least in the initial stage. Banpu has stationed two personnel in Mongolia since early this year. Banpu will send staff from its Daning mine to operate Hunnu while the Managing Director of Hunnu, George Tumur, will continue to work at Hunnu after the transaction.
Credit Suisse expects Banpu share price to rise to Bt885, which offers a 41 per cent upside gain from the Sept 12 closing of Bt626.
