PGAS Solid growth prospects - DBS Vickers

At a Glance
• FY10 core earnings were within expectations
• Larger capacity and potential gas price hike are key catalysts
• Maintain Buy for attractive valuation with superior yields and ROE.

Comment on Result
Pgas’ FY10 revenue grew 10% yoy to Rp19.8tr following larger volumes of both gas distribution (+4%) and transmission (+9%) due to stronger industrial demand. EBITDA improved by a stronger 15% yoy to Rp2.4tr, helped by 3ppt improvement in operating
margin following average 15% hike in gas prices for industrial and commercial users in Indonesia effective 1 April 2010. Pgas registered Rp369b forex translation loss (on loans) in FY10 due to Rp exchange rate changes against the US$ and Yen. Excluding the non-cash translation loss, FY10 core net profit of Rp6.6tr (+32% yoy) was within our and market estimates.

Pgas’ earnings outlook is promising given new sources of gas from LNG terminals and larger domestic supply. Its distribution volume might increase to 1,050 MMScfd in FY14 (+23% from FY10) upon completion of the West Java terminal. Pgas is also well-poised to receive additional domestic gas supply as new regulations mandate
upstream natural gas producers to sell 25% of their production to the domestic market.

Recommendation
We reiterate our Buy call for Pgas for its promising outlook and attractive valuation. Pgas is trading at a discount to regional gas peers, at 12x FY11F PE against peers’ average of 16x, but offers higher yields of 4% against peers’ average of 2%.