Banpu

BANPU Plc

Investment thesis: We attended a luncheon with BANPU last Friday. In all, we remain positive on the firm’s FY12 outlook. Its investments will start to bear fruit this year. Apart from buoyant ITMG outlook, profit growth will be buoyed by greater contributions from CEY and Chinese coal assets, particularly Goahe, while Hunnu will be the long-term growth engine. BANPU remains one of our two preferred picks within Thai Energy space.
Coal price should firm up through 2012: Management is optimistic about the outlook for Asian thermal coal prices, which it expects to firm up through 2012. Despite the global slowdown, the world coal market will remain tight with a projected supply deficit of 3mt versus a deficit of 10mt in 2011. China and India are the wild cards—their respective coal imports are anticipated to expand further. Japan will also increase imports, as its shuttered nuclear power stations aren’t likely to restart soon.
Regulatory risks have faded: The Australian govt’s planned Carbon Tax and Minerals Resource Rent Tax (MRRT) will become law by mid-year. The first tax would increase CEY’s production cost by only US$0.30/t, while the MRRT will have almost no impact at all. The Indonesian Domestic Market Obligation (DMO) is now clearer and relatively flexible. It stipulates a domestic sales quota of 18% for each local operator’s production, but allows mine operators to make up a shortfall by purchasing from supply-surplus operators. In China, management believes that the Goahe Mine will obtain a production license by mid-year.  
Goahe will make up for Daning; CEY set to improve … The contribution from Goahe will offset the loss of the Daning Mine. Moreover, CEY’s performance is set to improve. Management reaffirmed sales tonnage targets of 16mt (up 1mt YoY) for this year and 20mt for 2015. Note that BANPU targets a stronger ASP than we currently assume—it forecasts a mean price rise of US$5/t to $78/t for FY12. Apart from an increased export-to-domestic ratio and re-pricing initiatives, CEY’s coal can be priced at a higher premium, due to heavy demand for high-grade coal from Japanese buyers.  
…buoyant ITMG outlook; Hunnu a long-term driver: Management guided for a buoyant outlook for ITMG and reaffirmed a 2012 sales tonnage target of 27mt. ITMG has now obliged 63% of its sales tonnages under fixed-price contracts with an ASP of US$103/t. Yet, the firm will be slow to lock in further firm-price contracts, as it anticipates that prices will rise. Production at Hunnu is targeted at only 1mt this year, ramping up to 5mt by 2014.