BANPU

Banpu Plc (BANPU)

3Q13 net profit to surge 41%qoq from Fx gain; normalised profit to weaken
We estimate 3Q13 net profit to grow 41.1%qoq, thanks to Fx gain from AUD
appreciation against USD, comparing to Fx loss of B431m in the prior quarter.
Excluding the extraordinary item, normalized profit in 3Q13 would be B691m,
declining as much as 36.7%qoq as a result of following factors. 1) Profit from
a coal business in Indonesia is projected to decrease following average selling
price that has dropped 3.9%qoq to US$74/ton although selling volume has
increased 5.7%qoq to 7.4 million tons. 2) Profit from a coal business in
Australia would be suppressed by 17.5%qoq decreasing selling volume to 3.3
million tons because of a move of Mandalong mine’s longwall, while average
selling price is anticipated to stand close to that of the prior quarter at
US$70/ton. Moreover, the longwall move has also increased the cost and thus
depressed gross margin to 20% from 28% in 2Q13. 3) Share of profit from
associated companies would decrease 25.8%qoq to B715m due to decreasing
share of profit from BLCP power plant (BANPU holds 50% stake) on seasonal
effect and lower Fx gain of BANPU as the USD strengthened insignificantly at
end-3Q13 when compared with the previous quarter. Furthermore, profit from
a coal business in China would decline following decreasing selling price.
Overall, 9M13 net profit is estimated at B2.44bn, down 63.1% from the same
period last year and making up only 54.7% of our FY2013 forecast.
- Likely to cut 2013-2014 forecast to reflect lower gross margin
We are likely to slash our profit forecast for FY2013-2014 after 3Q13 earnings
are announced. For FY2013, the following figures would be cut: 1) gross
margin assumption, from 34% to 32%, to reflect a possible lower-thanexpected
gross margin, and 2) Fx gain/loss and hedging gain/loss assumption
in 9M13. For 2014, we would cut our assumption for the following issues: 1)
average coal selling price from US$80/ton to US$75/ton and 2) gross margin
from 36% to 32-33%. Preliminarily, FY2013-2014 net profit after the revision
would decrease 32.8% and 25.9% from the previous forecast, respectively.
However, we project the normalized profit in 4Q13 to drop from 3Q13 and
possibly make a quarterly low of 2013, which is consistent with a one-month
annual turnaround of BLCP’s power plant in 4Q13 that would make share of
normalized profit from BLCP during the quarter fall 80%qoq to B100m. Overall
profit from the coal business would only stay flat from the previous quarter.
Coal selling volume in Indonesia would decrease as a result of the rainy season
in the country, but it would be compensated by coal selling volume in Australia
that would increase after the longwall move was completed in 3Q13 while the
selling price would be stable from 2Q13.
- 29% upside from new 2014 fair value. Buy
Based on the new forecast and 2014 fair value (DCF) at B38/share, we
reiterate our BUY recommendation, believing that the coal price has already
bottomed out and would gradually improve along with increasing demands
from power plants and industrial sector. The current share price has 29%
upside from the fair value. However, Hongsa power plant court case can be a
pressuring factor in the long term. If the court rules that BANPU loses the case
and has to pay a fine of B31bn, the fair value would decrease around B8-
10/share.