JP Morgan Volume ramp-up at PLN Muara Tawar; we raise our PT to Rp3,000 ▲

Volume ramp-up at PLN Muara Tawar; we raise our PT to Rp3,000 ▲

Volume ramp-up at PLN Muara Tawar: Based on our channel checks,gas volume at PLN Muara Tawar increased to about 200MMScfd as of late Dec-08. We expect it to run at full capacity during 1Q09. To run at full capacity, PLN Muara Tawar should need 330-385MMScfd, compared to the current contracted supply of 300MMScfd from PGAS and 30MMScfd from Pertamina. According to our channel checks, the pipeline capacity from
PGAS should be able to supply up to 400MMScfd, which suggests that volume ramp-up at PLN Muara Tawar is progressing well.

No price decline in FY09?: According to recent media reports, Energy Minister Purnomo Yusgiantoro stated that the government would not require PGAS to lower its selling price, despite lower oil price, and would leave the decision to PGAS to determine the selling price. This should be positive for PGAS, in our view. However, we believe it would be better if we incorporate a flat/increasing selling price only after the elections in July 2009, as the risk of pressure from the government will likely be lower then. Currently, our new gas selling price estimate of US$5.22/MMbtu suggests a 5.0% Y/Y decline in the gas selling price.

Adjustments in our model: We incorporate the following: 1) we raise our FY09 gas volume sales estimate from 670MMScfd to 705MMScfd due to progress at PLN Muara Tawar; 2) we increase our FY09 selling price estimate from US$4.94/MMbtu to US$5.22/MMBtu; 3)we lower our estimate for PGAS’ investment in LNG receiving terminal from US$1.2B to Rp720MM; 4) we decrease our forecast for gas cost growth from 5.0% to 4.0%, which appears in line with 3.7% historical growth; and 5) we lower
our currency forecast, based on J.P. Morgan currency team’s new forecast.

We raise our Dec-09 PT to Rp3,000; maintain OW: Due to the above adjustments, we increase our DCF-based, Dec-09 PT from Rp2,800 to Rp3,000, suggesting 41.2% potential share price upside. We stay OW on PGAS due to greater earning growth visibility. Key risks to our PT: 1)volume shortfall; 2) selling price reduction; and 3) forex exposure.