Strong volume growth
PGAS enjoyed a strong 1Q09, boosted by 36.8% growth in the volume of gas distributed and 25.4% depreciation of the Rp/US$ as it prices gas in US$. This resulted in 77.6% yoy rise in operating profits. Gas volume is expected to continue rising. The rupiah, however, is appreciating; hence we expect the company to see flat operating performance, while the bottom-line will be improved by the expected forex gains arising from its US$ 881.0mn loan. We upgraded our forecasts on PGAS’s earnings on better-than-expected volume sales. Consequently, we increased its target price. However, because its share price is currently trading close to our new target price, we downgraded our recommendation to Neutral.
Better-than-expected volume sales. PGAS managed to distribute 721 mmscfd of gas in 1Q09, higher than our FY09F estimates of 717 mmscfd. This has contributed to PGAS’s outperformance over ours and consensus estimates. As the rupiah weakened 5.6% in 1Q09 to 11,750/US$ by 31 March 2009, forex loss was manageable, resulting in Rp1,220bn net income, 26.0 % of our FY09F estimate.
With potential additions in coming quarters. PGAS expected to deliver 30 mmscfd each to PLN power plants in Tanjung Priok, and Cilegon in 4Q09, and 8 mmscfd for the Talang Duku power plant. It could also potentially supply an addition of 30 mmscfd for the Muara Karang power plant and 80-100 mmscfd interruptible for the Muara Tawar power plant. PGAS has around 922mmscfd supply.
Closing all US$ derivative transactions. PGAS in February 2009 has ended its US$ interest rate swaps, and maintains its yen cross currency swaps. PGAS has a yen loan of JPY41.4bn, with no corresponding income in the Japanese currency.
Upgrade volume, and target price. We upgraded our volume sales from 717mmscfd to 749 mmscfd for FY09F and from 812mmscfd 2010F onwards to 847 mmscfd. The upgrade resulted in higher DCF valuation from Rp3,240/share to Rp 3,350/share. Our new target price of Rp2,570 (vs Rp2,070 previously) was based on 20% premium to our target market PE of 10x. As the current share price has reached our target price, we downgraded our recommendation to Neutral
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