Thursday, October 27, 2011

PT. Perusahaan Gas Negara (PGAS) - Plans to increase gas price in East Java region

by Mandiri Securities

(CC)Perusahaan Gas Negara: Plans to increase gas price in East Java region (PGAS , Rp2,750, Buy, TP: Rp4,960)

Currently, Santos supplies the gas for East Java region (SBU II), through PGAS network at US$2.4/mmbtu. Santos plans to raise its selling price to PGAS to about US$5.0/mmbtu. Following this, PGAS decided to also increase the selling price by around 30% in order to maintain margin.

Total contracted gas is around 130 mmcfd or 16% of total volume

Based on our discussion with management, the price increase is expected to fix by around next month. However, it is still under discussion with the customers and not finalized.

We did a sensitivity analysis and found out that if PGAS can increase the selling price in East Java by 30%, the impact to FY12F bottom line may be negligible (-2% decline).

We still maintain our Buy call on PGAS, currently traded at PER11F-12F 9.7x and 9.7x

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