BANPU – a Diamond in the Rough We Have Overlooked
It has been a long and rough road for BANPU’s shareholders that the price cannot break through ฿20 resistance line, but BANPU has actually revealed its trump card a while ago that could save itself and shareholders.
BANPU Public Company Limited (BANPU) is Thailand’s number one share in the coal business. Sadly, the share prices does not live up to its reputation as the number one in the business. Just when BANPU has a glimpse of reaching ฿20/share, it slides down in the mud over and over again.
When we look at the fact that 1-5 years ahead, the coal-fired power plant will remain as BANPU’s core business. After that, its role will slowly decrease to match its lower demand, and the plant will also die out as well. The business also has been pressured by an increasing number of protestors over its emission of large quantities of heat-trapping greenhouse gases, mostly carbon dioxide (CO2), that lead to climate change. New coal-fired plants will never see the daylight because of these matters.
The earning from holding 78.57% of BANPU Power Public Company Limited (BPP), an electric power plant, will not be able to make up for its loss from the core business, even though BPP is able to earn 35-40% profits from its revenue each year (10.8 billion baht revenue in 2018 with 4.15 billion baht of net profits).
However, a business in the electric power plant has a slow growth rate because of the long-term earning in succession, making this type of business suitable for long-term investments for consistent earnings.
The situation seems dire because we have forgotten that in October 2017, BANPU had invested 210 million dollars (approx. 7 billion baht) in a natural gas business in Marcellus Shale, USA with these following benefits:
- 80% return of benefits from a total of 112 holes.
- 100 million cubic feet of natural gas.
- 414,000 million cubic feet of natural gas reserve.
The investment on this natural gas venture had been done when there was a 40% gross profit margin, and BANPU has already started to recognize its earning for 26 million dollars (approx. 900 million baht) in 2Q18. Moreover, BANPU also aims to take more of the natural gas fields in the USA as well.
It is likely that the natural gas business will play a great role in BANPU business in these 1-5 years to compensate for the loss and slowly dying coal-fired power plants.
As for BANPU’s shares, it depends on the investors’ perspectives. If the share cannot break through the first resistance line at ฿20, the hope in BANPU may be lost.