PGAS Sep2020

PGAS

Contact our analyst Eka

Hold
15 September 2020
Price Rp 1,145
Target price Rp1,360

Down on Lower Demand

The impact of the Covid-19 outbreak is weakening demand across all of PGAS’ businesses.
Despite June increasing by +14% MoM due to reopening, PGAS’s distribution volume still decreased -9% YoY to 811 BBTUD in 1H2020.
Gas transportation volume in 1H2020 was 1,290 MMSCFD, -5% YoY. Lower gas transportation volume is inline with lower gas demand from major customers.
Upstream lifting also decreased, with oil gas lifting down -30% YoY to 20,492 BOEPD. Crude oil decreased by -24% YoY to 3,629 BOEPD, gas decreased by -30% YoY, LPG decreased by -56% YoY, and LNG decreased by -30% YoY. Lower lifting volume was also impacted by the crash in oil prices.
As Jakarta has once again implemented large-scale social restriction in September, we are expecting lower gas demand will still weigh on PGAS’s sales volume in 2H2020

ASP Decrease

Due to the Ministry of Energy and Mineral Resources Decrees 89 and 91 (2020), PGAS is going to fully implement the gas price of US$6,00/MMBTU on the volume of 646,13 BBTUD to seven industrial sectors and PLN starting from August 2020.
Previously, the new gas price policy was partially implemented starting from 2Q2020 and resulted in a lower ASP and APP in 1H2020.

More Efficiency

2020 has been a challenging business environment for most sectors due to the covid-19 outbreak. PGAS is no exception, pressed by lower demand and a decline in ASP.
As of 1H2020, PGAS’s revenue decreased -18% YoY to US$ 1.47 billion from US$ 1.79 billion in 1H2019 driven by lower revenue in most of PGAS’s businesses.
Despite a decrease in the cost of revenue of -17% yoy as PGAS started to partially procure its gas from upstream suppliers at lower prices, Gross profit still decreased -20% YoY to US$ 463 mn.
As PGAS continues to reduce opex by lowering salaries and depreciation expenses, operating expense decreased -18.4% YoY, but operating income still declined -23.4% YoY to US$ 193 mn.
Profit before tax decreased by -47% YoY to US$ 68 mn.
PGAS net income of US$7 mn was down -88% YoY from US$ 54mn in 1H2019.
As a result of the weaker 1H2020 results, we lower our 2020F PGAS revenue and profitability to US$ 2.86 billion and US$ 43 mn respectively.

Valuation: HOLD with TP 1,360

Our DCF valuation with WACC at 7.8%, gives a target price of IDR 1,360 or 19% upside which is a 26x PE valuation within one year. We recommend Hold.