PGAS (TP Rp5,000) Alert: 1Q11: Operating Results Within - Citigroup

GAS logged a 19% rise in net income in 1Q11 to Rp2.1t (29-30% of consensus and
CIRA's 2011E).

The key takeaways
Sales came in weaker than expected with just 6% Y-Y growth to Rp4.7t (23% of CIRA's 2011E). The main culprit was weaker than expected distribution volume of 780 mmscfd (-7% Y-Y). Management attributed the volume decline to shutdown maintenance of its gas suppliers and continued shift of ConocoPhillips gas supply to Chevron. PGAS’ gas allocation of c. 90-110 mmscfd remained diverted to Chevron in 1Q11. Hence, our
estimate of a 6% increase in distribution volume in 2011E to 881 mmscfd looks too optimistic.

Mitigating the volume decline, PGAS' ASP came in better than our expectation at US$6.9/mmbtu (CIRA: US$6.6/mmbtu). Thus, gross margin came in better than expected at 63.2% vs. 59.7% as we expected. EBIT margin expanded to 47.9% from 47.0% in 1Q10, underpinning the 8% Y-Y growth in EBIT to Rp2.3t (24% of CIRA's 2011E).

Below the operating line, PGAS booked a Rp414b of derivative gain on its JPY cross
currency swap.

Outlook
Distribution volume outlook remains tepid in 2011E as there is no definite date when
PGAS will receive back its allocated gas currently shifted for oil-shifting purposes. The ramp up in Jambi Merang gas production has been below expectation as well. The volume outlook is considerably better for 2012E as management revealed that PGAS has appointed a contractor for its FSRU West Java project and expects the
project to be completed in 2012E, as previously expected.
We maintain our Buy rating on the stock as we think the tepid earnings growth for
2011E has been factored in the share price. We expect earnings growth to resume in
2012E post the commissioning of PGAS' FSRU project.