Banpu

Banpu Plc  

 

Despite strong operations in 1Q15, BANPU's 1Q15 net profit (out on May 12) is estimated at only Bt82mn, wiped out FX loss on a stronger baht and weaker A$, both bad news for its US$ book value due to its baht-denominated loans and net book value in A$ for Centennial. Excluding non-cash items, we estimate operating profit improved 81% QoQ on more profit from power but fell 28% YoY on lower coal price and margin. We remain positive on 2015 earnings outlook, driven by better cost control and more profit from power after Hongsa starts up. We BUY with Bt34 TP as we believe profit has bottomed.  

 

Coal sales volume on target. Coal sales volume for both ITM and CEY in 1Q15 lined up with full-year targets at 7mt (-5.7% QoQ and 1.4% YoY) for Indonesia during that country’s rainy season and 4.2mt (+12.6% QoQ and 9.9% YoY) in Australia, with no shutdown. We expect average selling price of Indonesian coal to ease 3.2% QoQ and 13.8% YoY to US$61/t and that of Australian coal to fall 7% QoQ and 18% YoY to A$62/t, mainly due to lower price on exports. In all, we estimate coal operating profit to weaken 7% QoQ and 45% YoY.   

 

Power business key to 1Q15 earnings. Earnings from power should help support upon the full quarter of operations for BLCP and strong power business operations in China. By our estimates, operating profit from its power business more than tripled QoQ, though slipped 15% YoY.   

 

Net profit to recover in 2Q15. We expect a better 2Q15 without the hefty FX loss in 1Q15, though operating profit could slip from the longwall changeover at Mandalong mine in Australia. We expect 3Q15 to be its peak quarter for this year, driven by more profit from power as the first of three units of Hongsa commences operations. Management confirmed the COD for Hongsa power plant in 3Q15 for the first phase, followed by second in Nov 2015 and third in Feb 2016. Profit contribution from this new power plant is estimated at ~US$6mn/quarter/unit for a total of ~US$14mn in 2015, rising to ~US$64mn in 2016. 

 

Coal price outlook. Management expects the recovery of coal price to begin in 2H15 at earliest, when lower supply may support selling price. The current rise of coal price is unlikely to stay around long as there remains excess supply and price quotes in the market may apply to only a small amount of coal up for sale. Also, spot price may be manipulated by large suppliers in a bid to support the benchmark contract price between Japanese utilities companies and Australian coal suppliers, which is normally settled in April-May.   

 

Still a BUY on 17% upside to TP of Bt34. We maintain our TP of Bt34 based on sum-of-the-parts, primarily DCF valuation of the coal and power businesses. This assumes LT coal price assumption at US$70/t. Volatility in FX could affect BANPU’s profit and thus is a key risk to our forecast. Nonetheless, since it is non-cash item there should be no impact on our DCF valuation. Other risk is a weaker coal price than expected.