Rukun Raharja a Small King

Company & industry background
Rukun Raharja (RAJA) is one of Indonesia’s leading mid-to-downstream energy company which has a similar business model with Perusahaan Gas Negara (PGAS) focusing on the gas distribution and transmission business, yet in a much smaller form. It claims to be the only company besides PGAS that has such mid-downstream business chain. RAJA is affiliated with Mr. Hapsoro (RAJA’s current president commissioner) which is the son in law of Indonesia’s former President, Megawati Soekarnoputri.

Note that Perusahaan Gas Negara (PGAS) holds 85% market share in the gas distribution business whereas the private sector holds 15%. Out of the 15% private sector portion, RAJA holds 34% market share which is deemed to be one of the largest in the private gas industry. In the past, PGAS used to monopolize the industry, now the government has given incentive for privatization.

Strong gas demand opportunities
Although Indonesia is a net importer of oil due to under-investment in exploration activities, Indonesia is rich with gas possessing the 11th largest reserves in the world at 109 tcf. Given our strong GDP growth of ~6% level and infrastructure boom coupled with expected BI rate maintained at the 5.75% level for this year, domestic gas demand should absorb .

Solid business model
Its gas distribution channel varies from Banten (West Java) to Jambi (South Sumatera) with total capacity of 167mmscfd with utilization of ~42% and aggregate pipe line length of 170km. Its gas transmission segment has a capacity of 27.5mmscfd with ~65% utilization and 43.8 km pipe line. RAJA has variety of customers with long-term contracts with its main customer which are 41% PLN, 23% pulp paper and 12% ceramic & rubber from total sales.