At a Glance
• 2Q10 results in line with expectations
• On track to meet target sales volume and forecasts
• New gas supply contract supports higher volume and tariffs
• Promising outlook but trades at discount to regional peers’ valuations
• Maintain Buy and TP of Rp4,800, with 20% upside.
Comment on Result
2Q revenue grew 11% y-o-y to Rp5t.0tr on 9.3% and 11% increases in gas distribution and transmission volume to 827 MMScfd and 847 MMScfd, respectively.
2Q EBIT improved by a stronger 27% y-o-y to Rp2.5tr helped by 6ppt increase in operating margin following an average 15% hike in gas price for industrial and commercial users in Indonesia effective 1 April 2010. 2Q net profit (excluding forex loss on loan translation) grew by an even stronger 66% y-o-y to Rp1.6tr supported by both higher volume and tariff rates.
Outlook for PGAS is promising given its recent new gas supply contract with ConocoPhillip from Grissik field. Given PLN ’s urgent need for gas, we expect more new supply to come trough over the next few months. We estimate that every 10ppt increase in gas supply will boost PGAS FY10F net earnings by 11.4%.
Recommendation
PGAS is poised to benefit from Indonesia’s rising energy demand fuelled by strong economic growth and rapid infrastructure development. Maintain Buy and DCF-derived target price of Rp4800. PGAS is trading at attractive 12x FY11F PE versus peers’
average of 17x, despite its more promising growth prospects. It also offers higher net dividend yield of 4% versus regional peers’ average of 2%.
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