Banpu

Banpu Plc

Investment highlights 

- Continued weak earnings in 2Q15: We estimate BANPU’s net profit at Bt47mn (EPS: Bt0.02) in 2Q15, down 93% YoY and 31% QoQ, as the benefit from lower non-recurring losses (+USD23mn) will not be enough to offset a weaker coal operation (-USD37mn) and the impact of an unplanned shutdown at BLCP.  

-…but peak to be in 3Q15: BANPU’s 3Q15 earnings will be the best of the year, reaching as high as Bt1.0bn-Bt1.2bn. Overall coal sales volumes should increase QoQ due to no longwall removal at the Australian coal operation and dry season in Indonesia. Meanwhile, the current NEX spot price suggests BANPU’s ASP will remain as low as USD55-USD56/tonne. Additionally, the contributions from its power business will significantly improve as BLCP has already resumed normal operations and Hongsa power project Phase 1 will start contributing a full-quarter benefit from 3Q15. However, 4Q15 net profit will dip again due to another longwall removal in Australia and the onset of the rainy season in Indonesia, despite the startup of Hongsa Phase 2 on 2nd Nov 2015.  

- Less aggressive coal price outlook in 2016: BANPU’s management has become less aggressive on the thermal coal price outlook in 2016 as Chinese economic growth is slowing. The coal price now appears likely to start to pick up in 2H16 rather than 1H16 and then improve sustainably in 2017. Despite taking a 4%-5% more conservative assumption on the thermal coal price than the latest forecasts of Wood Mackenzie, we still foresee downside to our 2015-16 coal price projections by another 5%-7%. Based on our new set of thermal coal price assumptions, our 2015-17 earnings forecasts decline sharply by 24%-40% to Bt2.3bn for 2015, Bt2.9bn for 2016 and Bt4.2bn for 2017. 

- 3-6 month delay to unlocking value from listing of BANPU Power: Although it has been reported that BANPU would complete the IPO process by 1H16, management is confident that the listing can be completed by 1Q16. These dates nevertheless imply a 3-6 month delay from the original company announcement that the listing would happen in late 4Q15-early 1Q16. Management has said that the proceeds of about USD300m-USD400m (for about 35% of the company’s new shares) would be used to pay down debt, lessening interest expense by about USD15mn a year.       

Valuation 

- We lower our PBV target for BANPU’s coal business to 1.0x PBV from 1.24x (3-year historical average) to reflect the industry down-cycle. Meanwhile, our earnings forecasts are lowered sharply by 24%-40% due to cuts in our coal price assumptions of 5%-7%.  

- As a result, our new 12-month target price is set at Bt28.1, derived from a sum-of-the parts valuation.