Banpu

Below estimate: BANPU reported a 2Q12 profit of Bt2,734m, down by 2% QoQ and 14% YoY. The result was 16% below our estimate and 9% lower than the street. The bottom-line undershooting was largely because ITMG’s ASP and GM were lower than assumed—the firm posted US$94/t and 43%, respectively; we had modeled for $96/t and 46%.
Results highlights: Core earnings came to Bt1,443m, down by 26% QoQ and 39% YoY. Weak ITMG and CEY numbers were responsible for the decline, both QoQ and YoY. ITMG’s sales tonnages rose to 6.6mt from 5.7mt in 1Q12 (our estimate was 6.4mt), but that wasn’t enough to offset the falls in ASP and GM to US$94/t and 43%, respectively, from $101/t and 49% in 1Q12. CEY’s operation was hit by a long-wall move—sales tonnages dropped to 3.3mt from 3.5mt in 1Q12 and GM dived 500 bps QoQ to 28%. These twin effects outweighed the effect of a greater-than-expected ASP of $84/t (our estimate was $71/t). The firm explained that the price hike was due to a greater proportion of exports—54% against 41% in 1Q12.
On the flipside, equity income from BLCP and the China coal business almost doubled to Bt645m and Bt239m, respectively, from Bt548m and Bt187m in the first-quarter.
Outlook: We anticipate a weaker bottom-line in 3Q12, as BANPU is likely to realize much lower gains on coal swap contracts than the Bt1.1bn it posted for 2Q12. The firm’s operational weakness will persist. Although sales tonnages at ITMG and CEY are expected to improve with the onset of dry season in Indonesia and the absence of long-wall relocations at CEY mines, forecast ASP squeeze will probably outweigh the effect of volume growth—the spot coal price fall will have a much greater impact on second-half numbers.  
What’s changed? Given the disappointing 2Q12 profit (particularly ITMG’s ASP and GM), our FY12 earnings projection of Bt11,848m is now under review—BANPU will hold an analyst meeting today.
Recommendation: The weak 2H12 outlook for coal will keep BANPU underperforming the SET till the market regains confidence in its earnings prospects or the coal price starts taking off (which we don’t anticipate till late 4Q12). Yet, our BUY rating stands, premised on a good long-term growth profile, buoyed by production expansion and an expansive CEY contribution to FY13 earnings.