Banpu

Below estimates

BANPU posted a disappointing profit of Bt131m for 3Q14, down 81% QoQ and 86% YoY. The number was below our estimate of Bt315m and much lower than the Bloomberg consensus of Bt1.4bn. The disappointment was largely due to recognition of Bt1,130m extra losses from hedging diesel contracts and more importantly the reversal of deferred tax owing to the repeal of Minerals Resources Rent Tax (MRRT) by the Australian govt.      

Results highlights

Despite a dip in bottom-line, its posted core number of Bt1,267m was peak for the year, up 85% QoQ (but down 12% YoY). The number was slightly below ours and the street’s of Bt1.4bn due largely to lower than expected ITMG GM; the firm reported 30% versus ours of 32%. Regardless, the improvement came mainly from strongest-ever tonnages sales of ITMG and CEY of 7.74mt and 4.68mt, up from 2Q14’s 6.70mt and 3.24mt, respectively. Additionally, CEY GM bounced to 32% from 25% a prior quarter as a result of a full-quarter capacity run following to no long-wall schedules. On the flipside, ITMG ASP continued to decline (but as expected) to US$67.08/t in 3Q14 from US$68.23/t a quarter ago—while CEY ASP has improved slightly to US$67.64/t from 2Q14’s US$67.08/t because of the re-pricing of its legacy domestic contracts which was effective in 3Q15.     

Outlook 

We expect positive surprise to the 4Q14 number. The fourth-quarter is typically the earnings trough for the year, while CEY has a longwall move scheduled and BLCP will be shut for annual maintenance. But the oil price dive will mitigate the impact of a lower 4Q14 top-line, given that diesel comprises ~35% of ITMG output costs—we now model for NPAT of Bt372m.      

What’s changed?

Fine-tuning with lower than expected CEY GM in 3Q14, we have slightly slashed our FY14 profit projection by 6% to Bt2,986m. 9M14 NPAT comprises 88% of our full-year forecast, but 66% of the consensus. We anticipate that the street number will fall in line with our model due largely to exceptional loss booking posted for 3Q14.      

Recommendation

We remain bearish on the coal price outlook—a YE14 coal price rally is very unlikely ahead of stock-building season in China; and a street earnings forecast downgrade is ahead. But there is only limited downside risk to BANPU’s stock price. Two positive factors have emerged: 1) the recently agreed Japanese Benchmark Price (JBP) of US$73.50/t (a $10 premium to the current spot price) offers short-term relief for pricing during negotiation season this month and 2) the oil price fall will cut ITMG’s production costs significantly.