1.Perusahaan Gas Negara   | More than a pipe dream
PGAS IJ / PGAS.JK | OUTPERFORM - Maintained | Rp5,350.00 - Tgt. Rp6,100.00
Mkt.Cap: US$12,857.00m | Avg.Daily Vol: US$14.69m | Free Float: 43.00%
Gas Transmission & Dist | Author(s): Erindra KRISNAWAN, Erisca WIRAATMADJA
Despite the potential disappointment in short-term distribution volume 
growth, we believe that PGAS’s outlook remains positive. More aggressive
 investment in capex for its existing business, LNG and upstream assets 
is justified to support long-term growth potential. We trim our FY13-15 
EPS estimates for higher capex assumptions. But we raise our SOP-based 
target price from Rp5,500 to Rp6,100, mainly to reflect a more 
optimistic LT growth assumption of 6% instead of 5% given the more 
aggressive expansion. We maintain our Outperform rating in view of the 
favourable outlook and reasonable valuation.
Short-term risk
Despite the positive volume trend over recent quarters, management 
indicated that additional volume from the new potential supplies in 2Q13
 has yet to flow into PGAS’’s network. In particular, we now anticipate 
slower-than-expected additional supply from ConocoPhillips, which we 
originally expected to start flowing in during 2Q13. Assuming flat 2Q13 
volume, 2H13 volume will need to average close to 900mmsfcd to meet our 
full-year forecast. This spells volume risks as we also see downside 
from the East Java unit given the unexpected oversupply situation in the
 region.
Positive LT growth pipeline
PGAS is embarking on a strategy to expand its existing business, tap 
into the potential growth of LNG supply and venture into upstream oil 
and gas. We think that sustaining its core piped gas distribution 
business by maintaining a profitable gas margin and expanding gas supply
 will remain a key part of the company’s strategy.
 
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