CLSA PGas reports both FY08 results and 1Q09

Perusahaan Gas Negara (PGas IJ, 2500) , result comment from Swati
Market cap: US$5.76bn

On the first glance, 2008 numbers look rather weak. Net income is Rp634bn vs. our forecast of Rp1.25tn and consensus at Rp2tn. We forecasted forex translation loss of Rp2.57tn. But Pgas reported Rp2.50tn of translation loss and another Rp547bn loss on derivative transaction entered into to hedge part of the yen loan (Outstanding Yen loan about Yen 39bn of which Yen19bn is hedged by the derivative transaction). Note that the derivative transaction is profitable in 1Q09.

Pgas operating profit was Rp4.65tn vs. our forecast of Rp4.98tn (93% of our forecasts). This was because we used slightly higher average exchange rate for US$ to Rupiah conversion compared to the company.

Our distribution volumes number of 583mmscfd was broadly inline with 577mmscfd distribution volumes realized by the company.

Pgas operating cash flow was Rp3.77tn and cash on balance sheet as of 31 Dec was Rp3.5tn.

Note: Pgas can pay more than its net income by way of dividends. The forex loss is tax deductible.

1Q09 results
Pgas reported excellent 1Q09 results. It reported Rp1.22tn net income (29% of CL09 forecasts). Operating profit was Rp1.99tn (31% of CL09 forecasts). Operating margins expanded to 44.6% in 1Q09 on back of lower operating expenses as a percentage of sales. The operating margins are highest ever since 2000.

Distribution volumes were 721mmscfd higher than our full year forecasts of 670mmscfd. We will be revising up our distribution volumes upwards but with rupiah strengthening, forex losses of last year should reverse.

Pgas reported Rp2.09tn of operating cash flow for 1Q09 and Rp1.84tn of free cash flow. The cash balance as of 31 march 09 was Rp5.4tn.

We remain buyers of Pgas. It is expected to generate rich cash flow stream going forward. Lower average cost of gas as proportion of cheap contracted gas from SSWJ increases should expand margins. Higher volumes and lower costs should expand earnings. Higher dividends are also possible.