PGAS

Contact our analyst Eka

Better than expected results, exciting merger, 34% upside.
19th March 2018
Price Rp2,270
Target price Rp3,050

Better than expected results

2017FY PGAS revenue rose +1.18% to USD. 2.97 billion, +0.3% higher than our forecast for 2017F of USD. 2.96 billion. While net profit fell -53.0% to USD. 143 million from USD. 304.4 million in 2016FY, better than our 2017F estimate of USD 175 million.
The net profit was caused by higher cost of revenues which increased for oil and gas operations, by +46% yoy to USD 443 million, and for gas distributions +5% to USD 1,624 million, but decreased for Liquid Natural Gas (LNG) cost by -55.4% to USD 85.7 million.
Finance costs increased due to higher interest from the refinancing of commercial loan to bond in their oil and gas subsidiary.
As for targets for 2018, we estimate revenue to grow slightly by 1.6% to USD 3.02 billion.

Exciting Pertagas merger options

As of January 2018, the Government has reorganized their Oil and Gas holdings with PERTAMINA as the holding company.
In the establishment of the new oil and gas holding structure, PGAS and Pertagas have a few options, such as 1). PGAS acquires the shares of Pertagas owned by Pertamina, 2). PGAS acquires Pertagas’ s treasury stock – Pertagas right issue, 3) transfer of the shares of Pertagas owned by Pertamina to the share capital of PGAS, and 4) Merger.
As of today, we don’t yet know the valuation and the chosen option between PGAS and Pertagas. The decision will be released at the end of March or in April 2018.

BUY with 34% Upside

Duri – Dumai with 58 km and Duri – Dumai Transmission with 67 km of pipeline which is a joint venture with Pertagas will start to operate at the end of 2018.
And ESDM Ministry released PERMEN ESDM No. 4/2018 on the master plan of the natural gas transmission and distribution network, which will benefit PGASasadominantplayerin downstreamgas.
We maintain our BUY recommendation for PGAS with a DCF valuation with WACC at 8.21%.
We estimate PGAS shares will rise by 34% to IDR 3,050 within a year. BUY