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Friday, May 20, 2011

Limited Downside - Perusahaan Gas Negara Tbk

 by Indopremier Securities

PGAS’s share price increased by 18% last year vs. the JCI 46%, and YTD, the share price contracted by 7% vs. JCI’s gain of 3%. These reflected investors’ concern on slowing distribution volume, mainly caused by the diversion of Conoco supply to Chevron. Currently, PGAS is trading at 13.5 times this year’s earnings and 11.5 times FY2012, with an earnings growth of 15% this year and 17% next year. Share price underperformance has resulted in the current discount to the market rating, currently at 16.7 FY11 earnings, thus we view downside is limited. To the contrary, the counter has yet to price in not-too-distant future developments. With WACC of 11.4% and LTG of 3%, we arrive at a DCF value of Rp4,700/ share for PGAS, implying an upside of 18% from the yesterday’s closing price. Maintain BUY on the ground of PGAS solid business model and favorable valuation as well as prospects of current projects realization.

1Q11 Results

PGAS reported 1Q11 results slightly below consensus forecasts, with revenue represent some 22% of consensus’ and net profit of Rp2.16tr (+18%, YoY) represent 25% of that of consensus’. 1Q11 sales was Rp4.7tr (+6%, YoY), gross margin in 1Q11 slightly increased to 63% vs 60% in 1Q10 on higher ASP, while operating margin stable at 48%. 1Q11 bottom line is boosted by gain on derivative value of Rp413bn vs. Rp176bn in 1Q10.

Slower ramp up of Jambi Merang field

Jambi Merang field started its commercial production on middle of March being planned to have started at 20 Mmscfd, and planned to increase to 40 MMscfd in early April, and at 144 Mmscfd at its peak. Currently run at 10 Mmscfd, Jambi Merang is behind its original schedule. PGAS’ management is a bit pessimistic that the operation of Pertamina Jambi Merang field could supply back volume lost to Chevron in 2011. However, despite slower ramp up of Jambi Merang field, we view that this would not severely harm long term valuation of PGAS.

Projects underway

To secure additional supplies of gas, PGAS is in process of acquiring minority stake in several producing gas fields, to be completed before end of this year. Meanwhile, its 2(two) LNG receiving terminal plans are on tract to commence construction. We view realization of plans will strengthen the company’s supplies and claim back stronger operational earnings growth for the company.

Recommendation

We maintain BUY recommendation with TP Rp4,700 on favorable valuation, solid business model, and prospects of current projects realization. Currently, PGAS is trading at 13.5 times this year’s earnings and 11.5 times FY2012

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