CLSA Perusahaan Gas (PGAS IJ) update, maintain BUY, from Swati

We maintain our current distribution volumes of 926mmscfd

PGas is maintaining distribution gas volumes between 800-900mmscfd for 2010. On pricing PGas states that is has communicated their planned pricing adjustments to the industrial customers, nationwide. Based on the feedback from the customers, they'll decide in 2nd quarter of the application these price adjustments. We think price hikes will happen.

On the volumes, we think it is just start of the year and PGas should be able to sign more contracts this year meaning volumes 2H10 will be higher than 1H10 as usually the case. Pgas has allocated US$400m for buying minority stakes in upstream assets.

Last year Conoco Philips delivered 260mmscfd of gas and PGas total distribution volumes reached about 800mmscfd for the full year. This year Conoco is contracted to supply 350mmscfd of gas meaning PGas should reach 890mmscfd + we have 70mmscfd of Medco gas. Therefore our VOLUME forecasts are achievable if things get resolved with Conoco Philips which we believe it should.

Apparently Conoco Phillips has diverted some of gas which was earlier flowing to PGas to Chevron. PGas is not looking at legal action now and thinks that it can be resolved without any legal action since the Government realizes that severe gas shortage will lead to closure of industries etc and have negative ripple effects on the economy.

Maintain Conviction buy and see the weakness as an opportunity to BUY.