UBS Investment Research on PGN's FY08 and 1Q09 results

Happy ending to a month long drama

2008 results: revenue inline, core profit below
PGAS reported 2008 revenue of Rp12.8tr, 4% higher than UBS 2008e. The company recorded Rp2.5tr of forex loss (management did not get approval to capitalise forex loss) and Rp505bn of derivative loss. This resulted in reported profit of only Rp634bn, but core profit (forex and derivative losses are non-cash) was Rp2.7tr, 9% lower than UBS 2008e.

Q109 results: revenue above, core profit above
PGAS reported Q109 revenue of Rp4.5tr, which is 26% of UBS full year 2009e. We had expected Q109 revenue to be c24% of full year, as we believe gas distribution volume should grow during the course of the year. Margins also improved as we are proven to be too conservative on gas price cost. As a result, PGAS’ Q109 core profit of Rp1.2tr is 29% of UBS full year 2009e, above expectation.

Scope for earnings upside
We believe there is scope for 2009 earnings upside, driven by higher than expected gas distribution volume (721mmscfd in Q109 versus UBS full year 2009e of 700mmscfd). We caution of near-term pullback however, since the stock has rallied by 10.6% ahead of results announcement (published after market closed).

Valuation: Rp2,500 DCF-based price target under review
Our DCF approach uses an explicit forecast up to 2014, with a LT growth rate of 5% afterwards and a WACC assumption of 15.2%. Our rating and price target are currently under review.