UBS Investment Research - PGN 2008 results announcement delayed

2008 results announcement delayed

PGAS to seek FX loss capitalisation
PGAS’ management has announced a delay in the 2008 results announcement, as the company is waiting for approval from the Indonesian Financial Accounting Standard Board (IFASB) to capitalise part of its 2008 FX loss. According to management, the IFASB allows translation loss to be capitalised in periods of extraordinary currency fluctuations.

Timing of announcement and amount to be capitalised are unclear
Several things remain uncertain such as: 1) the length of the delay. Our conversations with management suggest PGAS may announce the results one week after the original schedule of 31 March, but there is scope for further delays. 2) How much of the FX loss will the IFASB allow PGAS to capitalise? We forecast a 2008 post-tax FX loss of Rp1.7trn (54% of core profit).

Positive on dividends, but initial market reaction may be negative
Assuming PGAS’ 2008 FX loss is fully capitalised and a payout ratio of 51% of reported profit as well (historical average), our dividend yield forecast for 2008 earnings would rise from 1.3% to 3.0%. Despite being positive on the dividend outlook, initial market reaction to the news may be negative due to the uncertainties mentioned above.

Valuation: Rp2,500 12-month DCF-based price target for PGAS The share price is 19% below our price target. Our DCF approach uses explicit forecasts up to 2014, with a long-term growth rate of 5% afterwards and a WACC of 15.2%.