Thursday, March 10, 2011

PT. Perusahaan Gas Negara (PGAS)

by JP Morgan

• Potential volume disruption up to 110MMScfd: Today, Bisnis Indonesia reported that there is a fracture in Santos’ jack up platform in Maleo. Santos is a gas supplier of PGAS in East Java and supplies 110MMScfd into PGAS distribution network. This supply is quite sizable as it comprises about 10-15% of total FY10E volume. The company has confirmed this news.

• Two stages repairs: Santos is likely to conduct repair in two stages: the first stage in the form of temporary repair is likely to be conducted in mid-April to May 2011 with total shutdown of gas supply for 15 days. The second stage in the form of permanent repair is scheduled to be conducted in 1Q12 with the risk of shutdown for 3 months.

• Negative to FY11E and FY12E earnings: Currently BP Migas and Santos are in discussion to avoid complete shutdown as the disruption in supply could hurt the industry in East Java. The final details are not yet disclosed; however we foresee that it will negatively affect FY11E and FY12E earnings of PGAS. We are not changing our forecasts at this point but estimate there could be potential 0.4% and 4.8% downside risks to FY11E and FY12E earnings on the back of this repair.

• Wait for clarity, maintain OW and DCF-based PT of Rp5,500: Meanwhile, we maintain OW rating and DCF based Dec-11 PT of Rp5,500 on PGAS. Our DCF is based on WACC averaging 13.8% and terminal value growth of 5.5%. Risks: (1) unable to secure new gas; (2) delay in the construction of LNG receiving terminals.

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