BANPU

Banpu Plc
- 1Q14 profit to make yearly new high
We project BANPU's 1Q14 net profit at B1.25bn, leaping 93.9%qoq and
making a new high in 2014, thanks to the following positive factors: 1) Share
of profit from BLCP (BANPU holding 50% stake) is expected to return to
normal at B500m after a factory underwent a one-month maintenance
shutdown in 4Q13. 2) Gross profit margin from Centennial (Australia) is
expected to rise from 24% in 4Q13 to 28% in 1Q14, as no extraordinary
expense recognized in 4Q13 would be booked in 4Q13. Coal price and sales
volume is projected to stay close to 4Q13 at US$70.5/ton and 3.7 million
tons, respectively. 3) B457m extraordinary profit from coal swap would be
booked in 1Q14. Profit from ITMG (Indonesia) is expected to drop. As a result
of low season (rainy season in Indonesia), sales volume is projected to drop
by 6.5%qoq to 7.2 million tons, while coal price is would stay close to 4Q13
at US$70.6/ton. However, thanks to cost reduction strategy, its gross profit
margin is expected to stay at 35%. Meanwhile, 1Q14 net profit from coal
mine in China (Gaohe) is likely to decline, as coal would be sold to steel
factories in China at lower price
- To decline in 2Q14-4Q14
We maintain our FY2014-2015 earnings forecast. 2Q14 net profit is projected
to drop qoq due to the following negative factors: 1) Coal price usually has a
lag-time from the spot price of coal by three to six months. Thus, 2Q14-4Q14
coal price is likely to drop because it would reflect weak spot price of coal
from late-2013 to early-2014. 2) Mandalong mine would be closed for 20 day
due to the longwall move, thus pressing 2Q14-4Q14 sales volume. 3)
Extraordinary profit from coal swap would not be as large as in 1Q14. We
project 2H14 net profit to fall from 1H14 due to the following negative
factors: 1) Coal price is expected to drop. 2) Mandalong mine would be
closed for 20 day due to the longwall move from late-3Q14 to early-4Q14. 3)
BLCP's factory would undergo a one-month maintenance shutdown in 4Q14.
Still, FY2014 net profit is projected to grow by 20.6%yoy.
- Focus on long-term investment
We derive FY2014 fair value (DCF) at B32. We recommend buying, focusing
on long-term investment. BANPU has possibly passed its lowest. Its PBV of
0.9x is lower than the sector's average of 1.3x. However, Hongsa power plant
court case can be a pressuring factor as long as the final judgment is not
made. BANPU's manager revealed that the official judgment is not likely to be
announced in the next few months