Perusahaan Gas Negara (PGAS) – Noisy as Usual? - JP Morgan

Stevanus Juanda (analyst) did a follow-up on yesterday’s Bisnis Indonesia article regarding gas pipeline fracture at Santos Maleo field (who supplies around 110mmscfd to PGAS), that can potentially disrupt its gas output and revenue to PGAS. Seperately, I have also checked with JPMorgan analysts who cover Santos in Australia, who then checked with their Santos counterparts. These are the findings:

From PGAS: Santos is likely to conduct repair in two stages: the first stage in the form of temporary repair is likely to be conducted in mid-April to May 2011 with total shutdown of gas supply for 15 days. The second stage in the form of permanent repair is scheduled to be conducted in 1Q12 with the risk of shutdown for 3 months. Stevanus Juanda is not changing his forecast but flags the 0.4% and 4.8% downside risks to FY11E and FY12E earnings on the back of this repair.

From Santos: Routine inspections on the leased Maleo jack-up have identified some minor remedial work is required. The plan is to complete this work in-situ with no interruption to production. The jack-up is leased by Santos. The cost of the work is the responsibility of the jack-up owner, not Santos. Work is scheduled to be completed by the end of next month. There is no requirement for any shutdowns.

My take – the stock appears to be well supported when the “bad news” out in the local press, with a number of aggressive buyers on the pad. Could this be the last hit before the rebound, that has become typical of PGAS? (the stock has gone through a number of very large share price swings in the past, on the back of exaggerated newsflow). On consensus, the stock is looking attractive on 11.8x P/E 2011 with 11% growth forecast for FY12. The stock has come off by 27% from recent peak in December 2010. Buy.

PS: Santos (STO AU) trading higher relative to ASX index when this email is written, so we know who the market is believing so far.