PGAS Jul2023

PGAS

Contact our analyst Eka

BUY
14th July 2023
Price Rp 1,340
Target price Rp 2,000

Double digit revenue growth

PGAS recorded double-digit revenue growth in 1Q2023, of +11.6% to US$ 933.6 million. This increase was primarily driven by higher contributions from gas sales, upstream operations, oil transportation, and others.
Gas distribution revenues rose by +6.7% YoY to US$ 650 million, while transmission sales experienced a decrease of -6.7% YoY to US$ 53 million, mainly due to increased production and lifting in the Fasken block.
In terms of gross profit margin, trading and transmission margins declined to 6.3% in 1Q2023 compared to 13.6% in 1Q2022. Exploration and production margins for oil and gas also dropped to 15.4% in 1Q2023 due to higher average costs, while the average gas selling price remained unchanged.
From January to June 2023, PGAS witnessed a +3.4% YoY increase in gas trading volume, which reached 932 bbtud. Gas transmission volume rose by +4.5% to 1,256 mmscfd, and oil transportation experienced triple-digit growth of +486% YoY, amounting to 160,179 mmboe.
Considering the strong volume growth in the first five months of 2023, we are targeting PGAS's revenue to reach US$ 3.85 billion for the full year, an +8% growth.

1Q2023: Still lower margin but improving

PGAS's net profit decreased by 27% YoY to USD 86 million in 1Q2023, with a lower net profit margin of 9.2%. This decline can be attributed to increased upstream production costs, a 76% YoY decrease in foreign exchange gains, and a decrease in the share of profit from joint ventures.
Cost of revenue increased by 16.3% YoY, primarily due to higher average costs of gas from upstream suppliers in 1Q2023 (US$ 5.82/mmbtu compared to US$ 5.66/mmbtu). However, the consolidated average selling gas price to downstream remained unchanged at US$ 7.40/mmbtu, resulting in a 5% YoY decrease in gross profit to US$ 176.7 million and a lower gross profit margin of 14.9%.
PGAS's profit decreased annually but showed an improvement from a loss in 3Q2022. For 2023F, we anticipate PGAS's net profit to be US$ 386.4 million, a 18.5% YoY growth.

Valuation: BUY, with a target price of 2,000

We maintain our recommendation to buy PGAS shares due to its steady performance improvements and expected growth in demand. Our discounted cash flow (DCF) valuation, using a weighted average cost of capital (WACC) of 10.2%, yields a target price of IDR 2,000 per share. This represents 49% upside potential and corresponds to an 8.5x price-to-earnings (PE) valuation within one year.