Banpu

Banpu Plc (BANPU)
Despite its earnings diversification, Banpu’s earnings are not immune to weaker coal prices as China’s coal demand slows down.
Catalysts could be rare over the next 12 months, given that Banpu is in a consolidation mode, developing new mines to replace existing ones.
We cut our EPS forecasts by 15-35% after lowering assumptions for coal prices, production volume and capex, as guided by the company.
We believe coal-price risks remain high and could overshadow any upside from coal production.
We downgrade Banpu from Outperform to Neutral and lower our SOP target price after our earnings downgrade. 

One step back for better future
In preparation for weaker coal prices,Banpu has cut its capex plans for 2012-15 by US$600m and its 2012 production target by 3mt. The cuts are spread across its producing mines
with an average reduction of 35%. Banpu is the first among regional producers to lower its coal-price expectations.

Earnings revisions
Following lower benchmark coal-price assumptions adopted by CIMB to reflect poorer coal demand from China and increasing supplies from the US in the short term, we cut our earnings forecasts by 15% to 35%. We also lower coal volumes by 4-7% to reflect the company’s capex cuts and guidance on project delays.

Too early to enter
Following our earnings downgrade, we lower our SOP target price from THB649 to THB497. Given no catalysts over the next 12 months, we downgrade the stock from Outperform to Neutral. Trading on par with its regional peers, Banpu’s valuations are not that attractive, in
our view. We believe a more attractive entry level for long-term investors would be below THB400/share.