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Tuesday, May 10, 2011

PT. Perusahaan Gas Negara (PGAS)

by Kresna Securities

We maintain BUY but cut TP to Rp4,900 per share. The Conoco Phillips(CoPhi) gas diversion, delay on Jambi-Merang production ramped up, and no expected contribution from the new field has forced us to foresee 1.7% YoY decline in distribution volume to 810MMSCFD. However, the bottom line should not be highly affected after including tax adjustment and forex gain with the appreciation of rupiah. Incorporating all the impacts, we have cut our FY11-12E net income by 0.9%-7.5% respectively. Currently, the counter is trading at undemanding FY11 P/E of 14.2x.

· Revenue increased despite lower distribution volume. Revenue increased by 5.7%YoY to Rp4.7tr. Revenue from distribution grew 5.3%YoY to Rp4.3tr on the back of 18.2% increases on ASP. However, the diverted Cophi gas to Chevron has reduced distribution volume by 7.3%YoY to 780MMSCFD. Meanwhile, transmission revenue increased by 5.8%YoY to Rp386bn as transmission volume grew 5.4%YoY to 860MMSCFD. Transmission tariff also improved by 4.5%YoY to US$0.56/MMBTU.

· Margin slightly improved. PGAS recorded 2.5%YoY gross margin expansion to 63.2% in 1Q11 mainly attributable to 18.2%YoY increase on distribution price, while cost of purchase price increased by only US$0.2/MMBTU, or increased by 11.2%YoY.

· Higher net profit due to additional other income. PGAS booked 18.4%YoY increase in 1Q11 net income to Rp2.2tr, while operating level grew by only 7.8%YoY. The company booked a gain on change in fair value of derivative and forex gain of  Rp600.2bn. The higher value was attributable to the recent rupiah appreciation. Meanwhile, interest expenses paid was 8.8% lower as compared to the year before as no more shareholders’ loan paid this year. On the other hand, interest income increased by 55.9% to Rp86.7bn.

· Cut FY11-12 Revenue by 9.6%-10.9%. We have decided to cut FY11-12 distribution volume by 8.9%-10.2% to 810-830MMSCFD. Our review was based on the 90MMSCFD of Cophi gas diverted from PGAS to Chevron, the delay on the Jambi- Merang production ramped up, and no new expected field to come to the pipes. On the other hand, we increased the FY11-12 transmission volume assumption by 6.3-4.2% to 850 in each year, as Cophi will use Transgasindo service to send the gas to Chevron.  In the mean time, we maintain our ASP for the distribution as well as the transmission.

· Minor change on cost assumption. As lower gas volume supply from Cophi is expected, our average purchase price composition will also be changed. Our model suggests a slight increase on FY11-12 average purchase price to US$2.6-2.7/MMBTU. Those imply to minor change on gross margin in FY11-12 to 63.7%-63.3%

· Cut FY11-12 net income by 0.9%-7.5%. In addition to several adjustments on operational level, we have also adjusted some items in the non-operating level. With regard to rupiah appreciation, we have arrived at Rp402bn forex gain in 2011. Tax rate is adjusted to 20% from 25% previously. Incorporating the above mentioned adjustments, we forecast FY11-12 net income to grow by only 14.7%-(3.4%) YoY respectively.

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