Perusahaan Gas Negara, Earnings Get Partial Boost From Forex Gain

PGAS’ 1H13 net profit was in line, at 52% and 53% of our and street estimates respectively. Gross margin fell to 47% in 1H13 from 61% in 1H12 on gas cost hikes in Sept 2012 and 1 Apr 2013. PGAS is now trading at an 18% discount to its 5-year historical forward P/E and is currently trading at an attractive 4% 2014 dividend yield. We deem this a good entry point for this solid stock.

Relatively in line
PGAS’ 2Q13 net profit reached USD184m (-32.5% q-o-q; +37.8% y-o-y), bringing the 1H13 figure to USD458m (+11.6% y-o-y). This made up 53% and 52% of our and consensus estimates respectively. Although the company’s 1H13 revenue rose 26.1% y-o-y, gross margin shrank to 47% from 61%, as the higher gas cost (due to price hikes in Sept 2012 and 1 April 2013) was only partially passed on to PGAS’ gas selling prices.

We expect distribution volume to rise in 2H13, bringing the 2013 target to 848 million standard cubic feet per day (mmscfd), a 5% y-o-y increase, mainly due to the additional 40 mmscfd supply from Conoco Phillips. PGAS high forex gain in 1H13 was as we expected given the weakening JPY against USD, since its yen debt takes up about 70% of PGAS’ interest-bearing debt portion.

Capex/balance sheet
The company’s cash declined to USD849m in 1H13 from USD1.67bn in 1Q13, mainly since cash has been taken up by the oil and gas (O&G) block acquisitions. Despite this, the company remains at a net cash level. Note that PGAS has expanded into upstream ventures by acquiring participating interests in three gas blocks.

Standing strong amid the gloom
We believe PGAS provides the defensive fundamentals in the face of gloomy macro conditions from Indonesia’s inflation and concerns over the weakening IDR. As PGAS is currently trading at an 18% discount to its 5-year historical forward P/E with an attractive 4% dividend yield for 2014, we believe this is a timely entry point to buy the stock as we see more upside potential. We keep our BUY call, with a TP of IDR6,500, which provides an attractive price upside potential.