Banpu

Banpu Plc
2Q14 profit is projected to fall sharply, but a record low would be in
4Q14. We recommend buying BANPU when the price weakens because
the coal business is possibly at the trough already and new investments are
waiting in the future.

- 2Q14 profit to fall 61.1%qoq
We estimate 2Q14 net profit at B700m or a fall of 61.1%qoq mainly
because extraordinary profit from coal swap would plunge significantly by
86.0%qoq to B160m. Normalized profit, on the other hand, would decrease
32.0%qoq to B540m due to decreasing average selling price of coal from
ITMG mine in Indonesia and lower coal sales volume from both ITMG and
Centennial mines. Overall, 1H14 net profit is projected to comprise 65.8%
of FY2014 forecast.

- 2H14 to weaken from 1H14
We maintain our forecast for FY2014, projecting 2H14 profit to weaken from
1H14 because an average selling price of coal from ITMG mine would
decrease continuously by US$1-2/ton every quarter and profit from BLCP
power plant would decline significantly in 4Q14 as a result of a one-month
annual shutdown. Moreover, a move of a longwall of Mandalong mine again
in 4Q14 would depress the profit margin, like it did in 2Q14. However, the
growth of 20.6%yoy is still foreseen in FY2014 and 33.6%yoy in FY2015.
- Buy on weakness
We derive 2014 fair value (DCF) at B32/share. A good entry point is when
the price weakens because it has surged aggressively within only a couple
weeks from news in the market. A future positive factor is new investment
projects e.g. a solar power plant in Japan, which has already been
committed by 10 MW (BANPU holds 50% stake) and another 10 MW is
during negotiation process.