Banpu

BANPU Plc

2Q12’s profit drops 1.8%qoq as pressured by softening selling price

BANPU posted 2Q12’s net profit at B2.73bn, dropping slightly by
1.8%qoq, close to our projection. The main factor making profit in
this quarter only stay flat from the prior quarter was a decrease in
average coal selling price along with global coal price which made
gross margin fall to 38% from 44% in 1Q12. At the same time, coal
sales volume in Indonesia has enlarged as expected, while sales
volume in Australia and China only stayed flat. However, in 2Q12
there was recognition of an extraordinary profit from hedging as
large as B1.1bn. Overall, net profit in 1H12 stood at B5.5bn, diving
55.2% from the same period last year and accounting for 47% of
our FY2012’s profit forecast.

Maintain 2012’s forecast. Profit to grow again in 2H12
We maintain our net profit forecast for FY2012, projecting the profit
in 2H12 to outgrow 1H12 on an expectation that an increase in coal
sales volume in Indonesia in 2H12 would help boost profit growth
and offset following negative factors: 1) Coal selling price tends to
weaken continuously in the rest of the year from a decrease in
global coal selling price. However, for the full year the coal price
would stabilize at US$90/ton, in line with our projection, as BANPU
has entered into a contract 80% of its coal at a price of US$97/ton,
so the rest 20% is open to risk from dependence on the BJI Index
that has weakened continuously by 20% since the beginning of the
year and pulled down average selling price for FY2012. 2) Share of
profit from BLCP in 4Q12 is projected to decrease due to a plan for
maintenance shutdown for 1 month. However, the positive factors
from increasing sales will help offset the afore-mentioned effects,
enabling the growth of profit in 2H12 compared with 1H12.

In long term reiterate BUY
Fair value at end-2012, using DCF, is B621.12/share. Reiterate BUY.
The fair value implies 36% upside from the current share price.
Norm profit in the next 3-5 years would still grow continuously from
increasing production capacity from new investments. Moreover,
since 2015 there will be a correction of selling price of Centennial
coal mine in Australia as the existing contract for coal sale at a low
price is gradually expiring.