In a mediation facilitated by Ministry of Industry, PGAS stood on its plan to raise its gas tariff by an average of 15%. PGAS applied a different pricing to different industry e.g. food and beverage industry tariff was US$3.8/MMBTU now US$4.1/MMBTU, while steel industry now is US$6.7/MMBTU. PGAS reasoned that its input cost now is US$5/MMBTU. PGAS will also apply a surcharge of 300% for gas consumed exceeding the quota, and PGAS required two months upfront payment (Investor Daily)
As has been written in our note yesterday, we are confidence of PGAS ability to raise its tariff. However, now our concerns have moved on to the supply availability and potential threat of input price increase. Conoco Phillips 400 MMSCFD supply to PGAS was priced at US$1.85/MMBTU signed in 2007. PGAS would be the least priority for Conoco to supply as their price is the cheapest. PGAS can not demand the agreed supply as the agreement is based on the gas availability. We have a Neutral recommendation for PGAS. At Rp4,225/share, PGAS is traded at 19.8x, and 18.7x PER10F and PER11F, respectively
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