PGas distribution volumes for 1H10 are 827mmscfd vs. our forecasts of 805mmscfd for full year. The currency is strengthening which will have a slight negative impact on earnings. We look to upgrade earnings by 5-7%.
That said there is no meaningful volume or price growth in next two years. PGas is also an infrastructure play as gas supply comes in block. The next big supply will come from LNG receiving terminal expected to be operational in late 2012, early 2013.
Thus PGas will have low growth unless they get make up volumes or other big block of supply which at this stage looks unlikely. We will keep on top of any new volumes coming through.
For now the stock offers 18% upside to our target price. We maintain our recommendation as the stock is trading at 10.5x 2011CL earnings offering highest ROE and ROA among CLSA power sector coverage.
Catalyst includes new gas supply for LNG receiving terminal. This we expect to be signed in 3Q10
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