Banpu

Banpu Plc (BANPU)

3Q12 profit projected to weaken 16.9% QoQ as pressured from falling selling price

BANPU’s net profit in 3Q12 is projected to stand at B2.27bn or 16.9% QoQ decrease due mainly to the weakened selling price of coal. In 3Q12, Indonesia’s average selling price of coal is projected to decline by 6% QoQ to US$89/ton along with the BJI index that has dropped continuously during the past 3-6 months. Although BANPU has cut cost of production in 3Q12 from the prior quarter by US$4/ton due to the decreased stipping ratio and the production capacity in 3Q12 that is projected to increase slightly by 3% QoQ to 6.85 million tons, this still fails to sustain the significantly weakened price of coal. Accordingly, the gross margin of coal business in Indonesia in 3Q12
would plunge to 42% from 44% in 2Q12, while the profit from coal business in Australia (Centennial) in 3Q12 would increase slightly from 2Q12. Although the production and sales have increased by 50% QoQ to 4.8 million tons, this would be offset by the selling price in export business (50% of the total sales volume) which is based on the BJI index that has fallen significantly as well. Moreover, extraordinary profit from share swap would be recognized in 3Q12
at B505m or 50% QoQ decrease. Overall, 9M12 net profit is projected to stand at B7.79bn or 52.9% decrease from the same period of prior year, considered 66.1% of our FY2012 forecast.

Likely to revise down 2012-13 profit forecast… 4Q12 profit projected to hit year’s record low

We’re likely to revise down FY2012-2013 profit forecast after an announcement of 3Q12 operating result to reflect the target of Indonesia’s 2012 coal production that has descended to 26 million tons from 27 million tons. Moreover, we’re likely to revise down our forecast of the average coal
price in 2013 along with the direction of the BJI price that has decreased to approx US$85-90/ton (normally, BANPU’s selling price of coal has discount from BJI index at around 10-15%). At present, BANPU has made a contract to assign the sales volume and 2013 selling price of coal by 50% of the total sales in 2013; 15% of which would be the fixed selling price at US$80-90/bbl
while the other 35% would be based on the index link. However, the profit in 4Q12 is projected to hit the year’s record low due to the selling price of coal that has declined continuously from 3Q12 and the profit sharing from investment in BLCP’s power plant (BANPU holds 50% of stake) that would fall significantly from 3Q12 due to the annual maintenance shutdown that would take 1 month.

Recommend “HOLD”… no supportive factors in 1-3 months ahead

Fair value, using DCF, at end-2012 is B507.04/share. We reiterate our recommendation of “HOLD” since there would be no supportive factors in the next 1-3 months. Nevertheless, we’re convinced that the share price that has dropped has already reflected negative factors at some level. Moreover, according to the fundamentals, the overall look of the coal industry has limited downside because the current coal price has neared the cost of coal producers in many countries such as the US, Russia, and Australia. Accordingly, the supply might decrease because it won’t worth the cost of production, so the recovery of coal price might be seen in 2013.