Banpu

Banpu Plc 

 

Missed expectations

BANPU unveiled another quarter of losses reaching Bt1,477m, much deeper than the 3Q15 loss of Bt72m and far below the Bt66m net profit posted for 4Q14. The reported loss ended worse than our estimate and the street’s—which earlier forecast slim losses ranging from Bt100-170m. Negative deviation came mainly from heavier tax expenses & losses on derivative hedging than earlier estimated; and also lower-than-expected equity income particularly from China coal operation.    

Results highlights

The negative highlight was mainly from exceptional expenses mainly from loss on derivative obligations and non-operating tax incurred by tax reassessment totaling ~US$30m. Coal operations from both CEY and Goahe also contributed negative contributions to BANPU. CEY has a long-wall schedule, which dent tonnage sales and spiked to the production cost—the output ended lower to 2.8mt from 3Q15’s 3.4mt with a sharp fall in GM to only 17% from 28% a prior quarter. Additionally, Gaohe reported a deeper loss of US$8.6m from a slim gain of US$0.7m as a result of low coal prices.  

On positive front, performance of ITMG remained sound—the output rose 5% QoQ to 7.3mt and GM fell short slightly by 200bps QoQ to 35%, given that falling diesel costs mitigated the effect of a further decline in ASP. Besides, a capacity full-run at BLCP sustained its profit contribution at US$12m, slightly lower than 3Q15’s US$14m—while Hongsa made the first quarterly profit of US$9.8m versus US$9.3m losses posted for 3Q15. 

Outlook 

We anticipate posted net loss to continue into 1Q16. ITMG ASP will be more responsive to the past decline in coal prices. Price will likely decline sharply to US$48/t (from US$55.6/t in 3Q15), outweighing the effect of a further fall in diesel costs. Additionally, contribution from Hongsa remains sub-par until the third unit commences in Mar. All three units will have to be synchronized before running at full capacity, which would lead to a turnaround in its earnings, earliest in 2Q16. 

What’s changed?

Based on our coal price forecasts (US$55/t for 2016), we maintain our FY16 NPAT estimate unchanged at Bt1.5bn. Apart from the dull coal price outlook, risk to our forecast involves operational performance of the Hongsa project, such as technical hiccups and extra overburden expense; and THB/USD fluctuation. 

Recommendation

While BANPU stock is trading deeply below BV of only 0.6x, we still don’t expect a further price appreciation. Muted supply response, slowing GDP, and a regulatory change regarding alternative base-load power options (rather than coal) in China will undermine the coal-price outlook in the foreseeable future. Given that, the market will continue to discount on its share price on concern of any impairment charges (though that is not our base case). Besides that, continued loss-making into 1Q16 and flows of a consensus earnings cut will cloud the stock price’s sentiment, in our view.