PGAS Dec2020

PGAS

Contact our analyst Eka

Buy
3 December 2020
Price Rp 1,470
Target price Rp 2,050

3Q2020 Demand Recovery

3Q2020 demand showed an improvement with industrial retail consumption from distribution increasing +15.4% QoQ to 486 BBTUD as consumption from PGAS’s customers recovered. But 9M2020 distribution volume has still decreased -13% to 812 BBTUD impacted by weaker gas consumption due to the covid-19 outbreak in 2Q2020. In October, the distribution volume recovery continues with slight growth of +2% MoM.
The higher distribution volume resulted in higher 3Q2020 distribution revenue of US$ 560 million, up +14% QoQ but still down -32% YoY.
Gas transportation volume in 9M2020 decreased -7% YoY to 1,276 MMSCFD. In October transmission also slightly decreased -0.72% to 1,227 MMSCFD. The transmission revenue saw a -10% YoY decrease to US$ 162 million and both 2Q2020 and 3Q202 transmission is still below 1Q2020 levels.
Oil transportation is flat, with a downward trend in regasification and LPG processing due to weakening demand.
PGAS’s ASP and APP decreased to US$ 7.85 and US$ 5.59 respectively from the impact of the lower gas selling price policy starting in April 2020.
After the demand recovery in 3Q2020, we expect conditions will continue to improve as the PSBB transition continues.

Recovery in 3Q2020

PGAS recorded a net profit of US$ 46.7 million in 3Q2020, after a loss in 2Q2020 of US$ 41.2 million. The net profit margin was higher compared to previous quarters at 6.8%. For 9M2020, PGAS net profit still decreased -59% YoY to US$ 53 million.
PGAS’s revenue in 3Q2020 increased +15% QoQ to US$ 682.1 million, and for 9M2020 decreased -23% YoY to US$ 2.15 billion because of the lower revenue in 2Q2020.
Cost of revenue decreased -36% YoY in 3Q2020, but gross profit still decreased -27% YoY (+29% QoQ) to US$ 225.7 million. The gross profit margin in 3Q2020 improved to 33.1% from 29.5% in 2Q2020.
Operating income declined -23.4% YoY to US$ 193 mn. The operating margin improvement to 18% in 3Q2020 from 3.5% in 2Q2020.
We expect PGAS profit will reach US$ 73 million in 2020F as a result of the weaker performance in 2Q2020 due to the covid-19 outbreak.

Valuation: Upgrade to BUY, with TP 2,050

Our DCF valuation with WACC at 8.56%, gives a target price of IDR 2,050 or 40% upside which is a 33x PE valuation within one year. We upgrade our recommendation from hold to Buy.