PGAS Sep2023

PGAS

Contact our analyst Eka

BUY
20th September 2023
Price Rp 1,385
Target price Rp 2,000

Maintain Gas Prices for non-HGBT customers

The Ministry of Energy and Mineral Resources in Indonesia has rejected PGAS's proposal for a gas price hike. The government's objective is to keep gas prices affordable for the general population. Previously, PGAS had planned to increase gas prices for industries outside a specific category of natural gas customers (non-HGBT) on October 1, 2023.
In the first half of 2023, PGAS achieved substantial revenue growth, with a 2.5% increase to US$1.78 billion. However, in the second quarter of 2023, PGAS experienced a revenue decline of 5.9% YoY to US$849.7 million. This decrease can be attributed to a drop in the upstream business and a decline in gas distribution.
Gas distribution decreased by 3% YoY to US$589 million, while transmission sales saw a significant increase of 36.4% YoY to US$80 million. The oil and gas revenue, however, decreased by 51.2% YoY to US$84 million due to weaker oil prices.
In terms of gross profit margin, trading and transmission margins increased QoQ to 17.4% in 2Q2023 compared to 6.3% in 1Q2023. Exploration and production margins for oil and gas dropped to 11.7% in 2Q2023.
PGAS expects strong demand to persist and aims to achieve full-year revenue of US$3.63 billion.

2Q2023 bottom line

PGAS's net profit decreased by 50% YoY to USD 59.4 million in 2Q2023, with a lower net profit margin of 7.0%. This decline can be attributed to a reversal of tax disputes totaling US$29.8 million in 2Q2023 and a 37% decrease in the share of profit from joint ventures.
On a positive note, the top-line margin improved with a Gross Profit Margin (GPM) of 22.5% in 2Q2023 due to lower cost of revenue, which decreased by 1.5% YoY or 13% QoQ.
Recent actions by Russia and Saudi Arabia to cut supply have led to higher oil and gas prices in the market. This is expected to have a positive impact on PGAS's upstream business. For 2023, PGAS anticipates a net profit of US$345.7 million, reflecting a 6% YoY growth.

Batam Site Visit

In August, a visit was conducted to PGAS facilities in Panaran, Batam. The facilities delivered 90.87 BBTUD in 1H2023, with the power plant sector being the largest customer, constituting 82.3% of the total. Delivery in Batam is expected to reach 112.82 BBTUD due to anticipated higher demand.

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

We maintain our recommendation to buy PGAS shares due to its consistent performance improvements and expected demand growth. Our discounted cash flow (DCF) valuation, using a weighted average cost of capital (WACC) of 9.81%, yields a target price of IDR 2,000 per share. This represents a 44% upside potential and corresponds to a 9x price-to-earnings (PE) valuation within one year.