On A Solid Platform
Perusahaan Gas Negara (PGAS) is well positioned to be one of key beneficiaries in
Indonesia’s moves to commercialize its large gas reserves, reduce dependency on
crude oil, and support adequate gas supply to meet domestic demand given the
company’s strategic assets and favorable pricing. Expanded pipeline coverage
should build PGAS a solid platform to deliver the goods and generate strong free
cash flows to undergo expansion within and beyond the pipelines. Higher than
expected gas price increases may present as catalyst, while new gas supply is
adding positive into the counter. We initiate our coverage on PGAS at BUY with
DCF-derived target price of Rp3,975, based on 11.0% WACC and 5% terminal value
growth, implying 2010-11F PER of 18.3- 15.0x.
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