Sunday, April 24, 2011

PT. Perusahaan Gas Negara (PGAS) - Nurturing Growth

by E-Trading Securities

PT Perusahaan Gas Negara (Persero), Tbk, better known by the abbreviations PGN or PGAS as naming for the stoke, is a state‐owned enterprise that was established to distribute gas from oil and gas exploitation areas to users in industrial zones, and even to residential areas. PGAS core business is divided into two: the distribution of natural gas to industrial, commercial and residential customers and the commercial transmission of natural gas. From the distribution business, PGAS derives profits from the sale of gas, while from the commercial transmission business PGAS receives toll fees for the transportation of gas.

In 2010, PGAS recorded operating revenues of Rp19.77 trillion and net income of Rp6.24 trillion. PGAS also yielded operating income of Rp9.04 trillion and EBITDA of Rp10.73 trillion in the 12 months of 2010. The financial performance resulted mainly from the increasing gas distribution volume of 824 MMSCFD. The volume was up by 4% from 792 MMSCFD in the same period of 2009. The increase is attributable to rising demand from industries particularly from power sector.

In the transmission business, gas volume increased by 9% from 767 MMSCFD to 836 MMSCFD in the 12 months of 2010.

We believe that demand for natural gas as alternative energy sources will increase. In 2010, PGAS consolidated all efforts to secure additional supplies.

PGAS has already begun to address the challenge by exploring new sourcing possibilities. In our view, PGAS commitment to running their business in a responsible manner, operating to provide sufficient supplies to meet domestic demand of natural gas through working intensively to secure more supplies to their pipelines and deliver the gas to their customer covering residential, small‐medium enterprises, industries, and power generation, will be crucial factor to their financial performance.

We initiate PGAS with BUY recommendation and our 12 months Target Price of IDR 4.700, which hide 18% potential upside, and reflect 15xPE12F.

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