Expect more price hike
At a Glance
• FY09 result exceeded expectation due to additional gas distribution in 4Q09
• Gas price hike reinforces our positive view; expect more volume and price-led growth
• Reasonable valuation with attractive 4% yield
• Maintain Buy with upgraded TP of Rp4,800
Comment on Result
Pgas’s FY09 revenue grew 41% following a 37% increase in gas distribution volume. Net profit improved significantly to Rp6.2tr, against Rp634b in FY08, due to higher distribution volume and Rp1.2tr forex gain against Rp2.5tr forex loss in FY08. Excluding forex effect, FY09 core profit grew 59% y-o-y due to higher distribution volume and estimated 3% increase in ASP.
Pgas’ FY09 net profit was 12% ahead of our and market expectations due to additional 60mmscfd gas distribution in 4Q09 to PLN’s plants in Cilegon and Tanjung Priok.
We upgraded FY10-12F net profit by between 8% and 18% after factoring in the 15% increase in average gas price effective 1 Apr 2010. We understand that the average cost for Medco’s new supply is US$5/mmbtu, which will kick in from 2Q10 onwards. We expect more price hikes over the next 1-2 years to adjust for higher input costs.
Recommendation
We continue to like Pgas for its volume and price-led growth. Valuation is undemanding at 13x FY11F PE against 53% ROE, FY09-12F CAGR of 12%, and net yield of 4%. The growing profitability and improving FCF yields (7%) is also likely to translate into higher dividends. Maintain Buy with upgraded DCF-derived target price of Rp4800 following the earnings upgrade.
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