Target price : Bt270
Recommendation : BUY
Closing Price (23 April 09) : Bt272
1Q09 net profit expected to be strong at Bt3,352.20m, up 61.63% YoY and 92.25% QoQ
- Our estimate assumes that coal sales volume will drop 11.22% QoQ in a rainy season, but coal selling prices will be similar to 4Q08.
- We expect BANPU's 2009 net profit to grow sequentially by 13.7% YoY to Bt10,949m, as coal sales volume are forecast to rise by 10.89%.
- Our 2009 price target is unchanged at Bt270/share, equivalent to a P/E multiple of 7x, based on an average of the coal sector's P/E ratio of 6x and the power sector's P/E ratio of 9x. Following the recent strong run-up in stock prices, we therefore rate BANPU shares a 'BUY on Weakness.'
1Q09 net profit expected to be strong Bt3,352.20m, up 61.63% YoY and 92.25% QoQ
As the first quarter is the rainy season, sales would be lower than other quarters of the year. Our forecast assumes that BANPU, Thailand's top coalminer will sell about 4.35m tons of coal in 1Q09, down 11.22% QoQ. The average coal selling prices are expected to be similar to the prior quarter at US$85/ton, down marginally from US$86/ton in 4Q08. We also predict BANPU will book dividend income of roughly Bt239m from RATCH. Gross margins should stay at high levels on the back of (i) the still-high average coal selling prices, driving margins higher, (ii) falling operating costs as a result of sliding oil prices. However, some costs would rise as a consequence of higher strip ratio. SG&A expenses should edge lower. In 1Q09, BANPU is expected to book a gain of Bt477m on derivative contracts, against a loss of Bt1,713m in the prior quarter, thanks to coal and oil hedging contracts of its subsidiary in Indonesia. For the quarter, its 50%-owned coal-fired power plant BLCP also supplied electricity to the Electricity Generating Authority of Thailand (EGAT) at a high rate. Underlying profit pre-FX is therefore forecast at Bt900m in 1Q09. We also estimate BANPU's 1Q09 net profit to be about Bt3,352.20m, up as high as 61.63% YoY. Growth reflects low average coal selling prices of only US$49.39/ton in 1Q08 despite higher sales volume of 4.539m tons.
Rising coal demand from China bodes well for global coal prices
Global coal prices held steady over the recent months on the back of rising demand from China in spite of the worldwide economic downturn. China was concerned about an excess supply of coal in its domestic market in the face of a deteriorating economic environment. The Chinese government therefore ordered suspension of thermal coal production for a period and shutdown of small, less potential coalmines in a bid to ease coal oversupply in Chinese market. The move had tightened its domestic coal supply while demand kept rising especially from large power plants. China's domestic coal prices were therefore higher than global market prices, thereby resulting in an increase in China's coal imports. Large power plants imported cheaper-priced coal to build up their inventory. Coal demand in Indonesia and India also picked up. On this basis, we believe coal prices are unlikely to ebb below the current levels this year. Our forecast therefore assumes average coal selling prices of US$72/ton for this year, similar to a year earlier given that some lots of coal contracts have fetched up to US$100/ton. To date, BANPU has already locked in 62% of its 2009 coal production volume target of 20.5m tons on forward contracts at an average price of US$79/ton. Next year, coal selling prices are likely to head back down due to a lack of high-priced coal contracts like this year.
2009 net profit poised to grow sequentially by 13.7% YoY
Our estimate assumes that BANPU will sell 20.5m tons of coal this year, up 10.89% from a year-ago level of 18.487m tons, and average coal selling prices will be similar to a year earlier at US$72/ton. To date, BANPU has already locked in 62% of its 2009 coal production volume target of 20.5m tons on forward contracts at an average price of US$79/ton. On this basis, we forecast 2009 revenue to come in at Bt55,471.66m. We also estimate BANPU's 2009 net profit to be about Bt10,494m, or Bt38.62 a share, up 13.7% YoY.
Risk factors: There are potential risks from coal swaps and oil hedging contracts. For coal swaps, BANPU has locked away 4.355m tons of coal on forward contracts at an average selling price of US$98.73/ton, and has entered swap agreements for 0.42m tons of coal at an average price of US$106.14/ton. If current coal prices fall below average swap prices, BANPU will book gains on derivative instruments. For oil hedging contracts, BANPU has hedged 240,000 barrels of oil at US$85.79/barrel. If current oil prices fall below average hedged prices, BANPU will book losses. Last year, BANPU recorded a total loss of Bt1,712.56m on derivative contracts.
'BUY on Weakness' recommendation with 2009 price target of Bt270/share
Following the recent strong run-up in stock prices, we therefore rate BANPU shares a 'BUY on Weakness.' Our 2009 price target is unchanged at Bt270/share, equivalent to a P/E multiple of 7x, based on an average of the coal sector's P/E ratio of 6x and the power sector's P/E ratio of 9x.
By Phillip Securities (Thailand) Plc. on Apr 24, 2009
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