3Q loss at Bt106m vs consensus estimate at Bt526m profit. Sales volume grew 2% qoq at ITM and flat at CEY. ASP dropped 8% qoq for ITM and 10% for CEY. Expect operations to remain weak in 4Q due to low NEX coal index. Cost savings should continue to be the key focus. Maintain HOLD, SoTP TP at Bt12/sh implying 11.8x FY20F PE; lacking positive catalysts

Disappointing 3Q results        

BANPU reported 3Q loss at Bt106m, vs. Bt86m profit in 2Q, dragged by lower coal prices at ITM and CEY, and FX loss (Bt553m). Sales volume at ITM was strong at 6.7m tons, +2% qoq. ASP dropped 8% qoq to US$61.2/t from US$66.7 in 2Q while unit cost also dropped 7% qoq to US$43.7/t. For CEY, sales volume was 2.8m tons, flat qoq. ASP dropped to A$89.8/t from A$99.4 in 2Q, due to higher proportion of domestic sales at 62% vs. 53% in 2Q, which provided lower ASP than export sales. The effective long-wall operations pushed down unit cost to A$65.3/t from A$88.6/t in 2Q. Equity income from associates dropped 21% qoq to Bt1.9bn, led by lower operating performance at BLCP (-11% yoy to Bt265m due to the decline of AP profile) but improving performance at Hongsa (+12% yoy to Bt850m). For CHP, drop in seasonal demand and steam led to loss of Bt110m.

Expect operations to remain weak in 4Q due to low NEX coal index

NEX coal index has softened to US$65/ton last week. As global economic slowdown and trade tension between US and China continues, this will negatively impact productivity and coal demand. We expect BANPU’s coal operations to be weak in 4Q19 while earnings contribution from power business should also decline due to scheduled maintenance shutdown for BLCP in 4Q.

HOLD, TP Bt12/sh; lacking positive catalysts

BANPU’s share price should continue under pressure due to weak NEX coal index and macro headwinds in 2019-20. We incorporate FX loss and finetuned minority interest into our model, which reduced our earnings this year to Bt1.4bn from Bt3.5bn. We maintain HOLD and SoTP TP at Bt12.0/sh, implying 11.8x FY20F PE. The share buyback program up to 7.5% of paid-up shares should help support near-term share prices. BANPU has already repurchased 77.3m shares or 1.5% of paid-up shares to date with total Bt1.04bn.