PERUSAHAAN GAS (PGAS) Report: FY2010 in-line Operating results, EPS below! - Credit Suisse

PGAS is lacking of short-term catalysts while LNG profitability remains key for mid-term growth outlook. Fonny is assuming Risk-Free rate 8.5%, therefore DCF Rp4,700 at end-2011F with LNG Distribution Margin USD1.8/mmbtu starting 2013F. At Rp3,900- PGAS is trading on 12.9x-12.4x PER with EPS Growth 17%-5%, 4.0%-4.6% Dividend Yield for 2011F-12F, and implying 20% UPSIDE to DCF Rp4,700 (implying 15.6x 2011F PER). Buy PGAS as a laggard but strong cash-flow Utility play which deserves to trade in-line with market (please note, Teddy Oetomo’s JCI Target is 4,150pts end-2011F based on 16x 2011F PER)!

· Fonny Surya (Report attached): PGAS’ FY10 net profit of Rp6,239 bn, flat YoY. The earnings were approximately 5% below our estimate and 7% below consensus. FY10 net profit ex. forex and derivatives losses, however, increased 36.2% YoY to Rp7,170 bn – approximately 12% above our forecast due to a lower tax rate. FY10 revenue rose 9.7% YoY, driven by increase in ASP of 11% YoY and distribution volume of 4% YoY. EBITDA margin improved to 54% from 52% in 2009.

· We still expect a decent 11% increase in EPS for 2011, given the full impact of price increase. We expect relatively flat earnings in 2012, given limited supply and little possibility of gas price increase. Despite our expectation for minimal growth in the near term, we see a potential recovery of volume from Conoco – by ~80 mmscfd (9% of total volume) – if Jambi Merang gas runs on schedule by 2Q11, which may serve as a potential catalyst. We revise down our tax rate assumption to 22.5%, resulting in a slight increase in our 2012 earnings estimate.

· We believe market’s concerns about supply and limited growth in the near term have mostly been priced in. We see limited downside risk to the current share price, and potential upside from Conoco volume recovery could prompt a rerating of the stock. We maintain our OUTPERFORM rating and target price of Rp4,700.