BANPU

BANPU Plc

World economy signals rebound, likely benefiting coal price
Barlow Jonker Index (BJI) coal price dropped US$2/ton to US$77/ton
last week after climbing from the bottom of US$76.6/ton to US$79.1/ton
within the past 1 month. Likewise, future coal price has recently declined
to US$78/ton. However, continuous recovery of global economies,
especially the US, Eurozone, and Asia, would gradually boost the coal
price along with increasing demands from the power plant industry. The
reviving coal demands have reflected from the Chinese coal inventory as
of last month that decreased to lower than 20 days from 70 days in the
past 3 weeks, which means China will have to consider importing coal
again after slowing it down in 1H13. Moreover, we believe new power
plants in the region, which are now under construction, will be coalbased
as it is a low-cost fuel, so the demand growth is foreseen in the
long run. In addition, if the coal price slips below US$75/ton, coal mine
operators with high operating cost will have to gradually close down
their businesses, which will result in decreasing supply in the market and
thus make the coal price soar again. Consequently, we project the coal
price to stand around US$75-80/ton, before rising continuously in 2014.
- 2H13 net profit to rise 30% from 1H13. Further growth foreseen in 2014
We estimate 2H13 net profit to grow 30% from 1H13. Contributing
factors are the sale volume that is projected to increase 1 million tons
and the production cost that is projected to decrease US$3/ton to
US$48/ton, which would compensate for a US$1-3/ton decline in the
average coal selling price to US$74-76/ton (recovering spot and future
prices of coal will benefit BANPU’s selling price in 2014 more than in
2013 because the company has entered 84% of its coal sale in 2013 into
a forward contract). Share of profit from BLCP power plant would shrink
due to an annual maintenance shutdown in 4Q13. 2014 profit growth is
anticipated as high as 36%yoy as a result of escalating coal price and
selling volume.
- Coal price recovering. Upgrade to BUY.
We believe the coal price has already bottomed out and is now gradually
recovering along with rising demands from power plants and the
industrial sector. The current share price has 20% upside compared with
2013 fair value (DCF) of B352.57/share. We upgrade our
recommendation from HOLD to BUY. However, Hongsa power plant court
case can be a pressuring factor in the long term. If the court rules that
BANPU loses the case and has to pay a fine of B31bn, the fair value
would decrease around B100/share. Nevertheless, for an investment
strategy in the next 3-6 months, BANPU is still attractive.