Mandiri Sekuritas Perusahaan Gas : Price increase did not suffice potential increase in COGS (PGAS, Rp4,175, Neutral, TP:Rp4,650)

􀂄 PGAS formally announced the increase of an average 15% (our calculation is 15.8%) from US$5.49/MMBTU to US$6.36/MMBTU. However, post coverage of gas shortage (with several assumptions), we conclude that the increase is just enough to cover the average increase in cost of gas.

􀂄 Assumptions that we use: a flow of 900 MMSCFD (maximum flow previously guided by PGAS), a deficit of 150 MMSCFD (as stated by PGAS CEO in various sources, today). We use US$2.6/MMBTU as average cost of gas for 750 MMSCFD (current flow with low cost, a cost PGAS has for 900 MMSCFD if there is no shortage), and US$5.4/MMBTU as gas price to cover the deficit. Our calculation showed an increase in average cost of gas from US$2.6MMBTU to US$3.07/MMBTU. That is an increase of 17.9%.

􀂄 Coupled with strengthening Rupiah we might saw a decline in profits. As PGAS charged in US$, and Rupiah 1Q10 (9264/US$) was 11% stronger than FY09 average of 10,396, we might see a drop in operating profits. Therefore it emphasizes our Neutral recommendation for PGAS. At Rp4,175, PGAS is trading at 19.6x and 18.4x FY10F and FY11F PER, respectively.