The company announced an in line with expectation 2Q09 net profit of Bt84mn or an EPS of Bt0.40 (fully diluted), down 19% yoy and 21% qoq due to lower coal volume by 12% to 0.25mn tonnes following the economic slowdown and lower average coal prices by 8% yoy to Bt2,500/tonne from a price war. Therefore, the company gross margin fell from 31% in 2Q08 to 16% this quarter. In 2Q09, the company booked a reversal of part of an inventory loss of Bt51mn and higher than the 1Q09 booking of Bt13mn due to higher BJI coal prices, which increased from $62.85/tonne at end 1Q09 to $70.85/tonne at end 2Q09. Furthermore, the company also recorded a forex gain of Bt3.5mn this quarter. When excluding the extra items, the company reported a normalised profit of Bt30mn for a decrease of 73% yoy and 67% qoq, which we see as the bottoming this quarter based on the business recovery in the second half.
3Q09 earnings outlook flat compared to the previous quarter
We expect the 3Q09 normalised profit to be flat compared to the previous quarter due to the continuing price war, but not as severe as 2Q09 following a rebound in coal prices, which are currently at $75.35/tonne, up 6.4% from end 2Q09. Sales volume is projected to slightly increase from large customer volume (normally 45% of sales). Although the 1H09 net profit accounts for 57% of our full year earnings forecast, we are maintaining our 2009 net profit projection at Bt334mn (EPS Bt1.59), down 17% yoy, due to the weak earnings outlook in the second half. We believe the current rebound in coal prices will benefit the company in 2010, when we expect to see growth of 29% yoy to Bt432mn (EPS Bt2.06).
No interim dividend, maintain Speculative buy
The company will omit an interim dividend and move to pay a full year payout due to the profit uncertainty. We expect the company to pay a 2009 dividend of Bt1, representing an attractive yield of 7.3%. The current share price is trading on a PER of 8.6x and offers an upside of 16% to our fair value estimate of Bt15.90. Despite our expectation of a company 2H09 net profit slowdown from 1H09, based on reversals for inventory loss, the recent rebound in coal prices will help support the share price. Therefore, we are maintaining our Speculative buy recommendation on UMS.