Banpu

Banpu Plc

- 4Q13 net profit to shrink 32%qoq due to BLCP and lower selling price
We estimate 4Q13 net profit at B650m or a decline of 31.7%qoq, mainly due to the
following factors. 1) Shared profit from BLCP (BANPU holds 50% stake) is projected
to sink from B856m in 3Q13 to only B10m in this quarter because the plant had
already produced power to the limit of the annual agreement since late October
and thus there was not a production in the rest two months of the year. 2) Average
coal selling price in Indonesia and Australia would drop respectively by 2.3%qoq
and 0.8%qoq to US$71.0/ton and US$70.4/ton on average. Nevertheless, there
are still positive factors to sustain the overall profit in 4Q13 as follows. 1) Coal
selling volume in Indonesia and Australia is projected to increase 2.0%qoq and
15.6%qoq to 7.7 million tons and 3.7 million tons, respectively. 2) There would be
a Fx gain of around B295m. Since BANPU reports its earnings in US Dollar and US$
has strengthened in 4Q13, the company would be able to book a Fx gain from its
Baht debt of US$300m, which would negate a Fx loss from slight Rupee’s
depreciation in 4Q13. Overall, FY2013 net profit is estimated at B3.16bn, dropping
62.1%yoy, 4% worse than our previous forecast.
- Cut 2013-2015 forecast to reflect decreasing selling price and
volume
We revise down our net profit forecast in 2013 -2015. For 2013, we cut the profit
forecast to reflect earnings in 4Q13 that might be worse than expected as a result
of the decreasing coal selling price as mentioned above. For 2014-2015, we slash
our assumption of average coal selling price and selling volume, as shown in the
table. Average BJI in 2014-2015 is anticipated to stand within narrow frames of
US$82-84/ton and US$85-88/ton, respectively (BANPU’s coal price normally has
around 10-12% discount from BJI), because the coal industry would be in an
oversupply state in the next couple years. A factor to offset the aforementioned
situation would be new coal demands, but it will not appear until 2016-2017 in
which four to five new coal-fired power plants in South Korea start operating
commercially. Moreover, BANPU has entered 55% of its coal sale into 2014 power
purchase agreement (30% for a fixed price of US$72/ton and 25% for a BJI based
price). In terms of coal sales volume, we cut BANPU’s production target as the
company has not accelerated its production for sale. Consequently, new 2014-2015
profit forecast decreases 23.8% and 28.2%, respectively, from previously. This is
in line with our study that at every US$1 decrease in the coal selling price, BANPU’s
profit would drop by B250m or 5% of FY2014 profit. However, after the forecast
revision, 2014-2015 profit would still grow by 20.5%yoy and 33.5%yoy,
respectively.
- Buy. Low PBV of 0.7x. Dividend yield of 4-5% p.a.
Under the new forecast, 2014 fair value (DCF) is B32 (previously B38). We
reiterate to buy BANPU, believing that the business has already bottomed out until
the PBV is low at only 0.7x, below the sector’s average of 1.2x. 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.