PGAS
Contact our analyst Eka
BUY
7th November 2023
Price Rp 1,235
Target price Rp 1,900
7th November 2023
Price Rp 1,235
Target price Rp 1,900
Stable revenue with a margin drop
3Q2023 Results: Margin decline
Valuation: Maintain BUY, with a target price of 1,900
- PGAS's 9M2023 performance remains stable with a slight increase in revenue by +1.85% to USD 2.69 billion. In 3Q2023, revenue also slightly increased by +0.6% YoY or +6.7% QoQ to USD 907 million. This stable revenue is due to lower upstream business revenue, while distribution and transmission revenue show positive growth.
- Gas distribution increased by 3% YoY or +9.9% QoQ to US$648 million, while transmission sales saw a significant increase of +24.4% YoY to US$67 million in 3Q2023. However, oil and gas revenue decreased by -48.2% YoY to US$100 million but increased by +20% QoQ due to higher oil prices in 3Q2023.
- In terms of gross profit margin, trading and transmission margins decreased to 4.3% in 3Q2023, the lowest compared to previous quarters in 2023. Exploration and production margins for oil and gas dropped to 1.8% in 3Q2023, also the lowest margin due to PGAS's inability to pass on the higher cost to PGAS prices.
- We expect strong demand and higher oil prices to boost the upstream business and aim to achieve full-year revenue of US$3.63 billion.
3Q2023 Results: Margin decline
- PGAS's net profit decreased by -22.4% YoY or -6.1% QoQ to USD 55.8 million in 3Q2023, with a lower net profit margin of 6.1%. This decline can be attributed to a higher cost of revenue by +4.8% YoY or +14% QoQ to US$749.4 million in 3Q2023 and higher operating expenses by +6.3% YoY to USD 48.6 million.
- The results show a margin decline, with the gross profit margin at 17.4% from 20.6% last year and operating margin at 12% from 15.6% last year.
- Recent actions, such as conflict in the Middle East and extra voluntary oil output cuts until December 2023, will impact higher oil and gas prices in the market. This is expected to have a positive impact on PGAS's upstream business.
- For 2023, we have revised down our target net profit for PGAS to US$274 million, reflecting a -16% YoY decline.
Valuation: Maintain BUY, with a target price of 1,900
- We maintain our recommendation to buy PGAS shares due to the expected price growth in the upstream business and anticipated higher downstream demand. Our discounted cash flow (DCF) valuation, using a weighted average cost of capital (WACC) of 11.9%, yields a target price of IDR 1,900 per share. This represents a 54% upside potential and corresponds to an 11x price-to-earnings (PE) valuation within one year.
