BANPU

Banpu Plc (BANPU) 
2Q13 net profit drops 32%qoq due to Fx loss
BANPU posted 2Q13 net profit at B629m, decreasing 32%qoq, lower than our
projection because we have overestimated the coal sale volume and gross profit
margin. The significant decline in the net profit resulted from a Fx loss of B431m
from AUD weakness against USD (because Centennial possessed a USD debt of
around US$300m), as well as a B32m loss on financial derivatives, comparing to
B1.17bn gain in the previous quarter. Excluding the extraordinary items, norm
profit stood at B1.093bn, jumping 117.6%qoq, thanking to the following
contributions. 1) Coal sale volume in Australia has increased 27.9%qoq to 3.8
million tons because Mandalong mine could resume its full operation after a
longwall move in 1Q13. At the same time, coal sale volume in Indonesia has also
shifted 2.9%qoq to 7 million tons. 2) The company could book a 17.9%qoq higher
share of profit from subsidiaries to B963m, among this was a share of profit of
from BLCP (BANPU holds 50% stake) which rallied 38.9%qoq due to the high
season and a Fx gain from the appreciation of USD as BANPU booked Dollar as a
functional currency. 3) The company has recognized 45.4%qoq higher share of
profit from a power plant in China. However, a negative factor in 2Q13 was
average coal sale price in Indonesia that has dropped 3.9%qoq to US$77.5/ton
following a continuous decrease of BJI. Overall, 1H13 net profit was B1.55bn, down
64.3% from the same period last year and comprising only 34.8% of our FY2013
forecast.

Sale volume likely to boost 2H13 profit growth
We maintain FY2013 net profit forecast as 2H13 norm profit is likely to stay high
like 2Q13. Sale volume is projected to rise by 1 million tons while production cost
would decrease by US$3/ton to US$48/ton, compensating for average coal sale
price that is likely to fall by US$1-3/ton to US$74-76/ton (though spot and future
prices of coal signal recovery, BANPU has entered 84% of its oil production in 2013
into a forward contract, so benefit from a rise in coal spot price will be seen in
2014 coal sale price), as well as a decrease in share of profit from BLCP power
plant due to seasonal effect, as annual maintenance shutdown is scheduled in
4Q13. 2H13 net profit is projected to increase as the company will not book a high
Fx loss in 2H13 as it did in 2Q13. FY2014 net profit is likely to surge by 36%yoy
due to rise in coal sale price and sale volume.

No new positive factor to negate pressure from Hongsa, reiterate "HOLD"
2013 fair value (DCF) is B352.57/share. We reiterate to hold BANPU. Coal price in
spot and future markets has shown a sign of rebound in the short term, as BJI
Index has recently surged to US$79.1/ton along with increasing demands in China
and the US. However, the rise in the coal price and demand would be gradual, so it
would not be able to negate the negative factor from worries about Hongsa power
plant case. Under preliminary assumption that the court rules BANPU has to pay
fine of B31bn in the next 6 years, the fair value including the expense (one-time
expense) would decrease around B100/share. We have not yet included this issue
in our forecast, so it still needs to be monitored.