Banpu

Banpu

Price Target : Bt700.00

Stock has lagged the SET and SETENERG indices and Indonesian peers YTD, implying potentially weaker coal prices next year has been priced in

Upgrade to BUY (from Hold) with Bt700/sh TP, excludes upside from Hongsa power project

Regulatory risks now removed. BANPU is looking more attractive since the mining tax issue has been clarified and the recent share price correction. On 23 Nov, Australia’s lower house passed the long-proposed ‘Mineral Resource Rent Tax’ (MRRT), which aims to tax the ‘super profits’ of resource companies, including coal miners. But we estimate BANPU’s subsidiary CEY will not be subject to MRRT for the next three years at current margins.

Current price discounts weaker coal prices next year. BANPU is trading at below its 7-year mean, and YTD, has lagged the SET and SETENERG indices, its closest peers (ADRO, PTBA), and subsidiary ITMG. We think operating risks at CEY and potential weaker coal prices next year have been priced in. Despite growing macro risks, demand from thermal coal is resilient, especially with the planned expansion of coal-fired power capacities in India and Indonesia over 2012-2016. We expect coal prices to move up in the near term due to restocking for winter.

Upgrade to BUY, TP Bt700/sh. Our TP excludes upside from the 1,800MW Hongsa Power Plant (40% stake), for which BANPU has signed a power purchase agreement and will start commercial operation in FY15. BANPU is one of the most defensive stocks in energy sector and offers good asset proposition with strong corporate governance. We introduce forecasts for FY13.