Raising TP to Rp3,750, reiterate Buy (1L) — We continue to like PGAS, as the company’s positive outlook remains intact, as evidenced in the distribution business' encouraging performance in 1H09, while valuations remain attractive. We raise our DCF-based target price to Rp3,750 (from Rp2,850 previously) on our valuation roll-forward and volume upgrade effect.
A strong start in 1H09 — Following weaker-than-expected 4Q08, PGAS’ gas distribution vol. saw a strong increase to 721mmscfd in 1Q09 and 740mmscfd in April. This points to an encouraging demand recovery from industrial users, while off-take from power plants (PLN) has continued in 1Q09. In view of the strong distribution performance YTD, we have raised our 2009-11E distribution volume projections by 2-6%.
Price increase: not in 2009; but ample room for future upside — We do not expect a gas price increase to take place this year due to Indonesia’s ongoing elections. Nonetheless, we still see upside on gas price, as the current US$5.4/mmBTU is still at ~54% discount to domestic diesel’s price. Accordingly, we have lowered our 2009E price increase assumption to 0%, but maintained a 5% assumption for 2010E.
Valuations still supportive — Despite the share prices’ recent rally, we believe at current 13x ’09E PE the stock remains attractive given 29% earnings CAGR (2009E-11E) with strong visibility on volume as a major driver. Additionally, current valuation is at a discount to 2004-08 average of 17x.
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