Research & Stock Picks

Emiten Report

03 June 2024

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PGAS Update, BUY TP: 1,800 (from 1,300)

Upgrade TP to IDR 1,800, reflecting 2.8x EV/EBITDA FY24F on:

  • Management has guided for higher 1Q24 gas spread that will continue throughout the year at a range of USD 1.6-USD 1.8/mmbtu, resulting in favorable margins ahead. Higher gas spread of USD 1.72/mmbtu resulted in increased 1Q24 EBITDA margin of 34.4%, and robust bottom-line growth to USD 121.1 million (+40.8% YoY).
  • 1Q24 venture into LNG with Petronas, contributed USD 61 million (margin spread of USD 3/mmbtu), is expected to add 5.7% to PGAS’s total 2024 revenue amounting to USD 3.7 billion.
  • Despite potential stake sale in Pangkah field, the 8.7% YTD hike in WTI oil price provides a strong revenue outlook for Saka in 2Q24 and potentially throughout the year. Saka posted 1Q24 top-line of USD 113.8 million, down -11.8% YoY, and 12% PGAS’ revenues, before reaching USD 440 million in FY24F, up +5.2% YoY, and accounting for 13.3% of PGAS total sales.

Risks to our call:

  • A threat to revenue emerges as the government plans to expand the USD 6/mmbtu HGBT from 7 to 11 industries. The HGBT pricing scheme is subsidized, yielding zero margin for PGAS, potentially resulting in lower overall margins if this expansion materializes.
  • Recent news implicates PGAS in a potential corruption case involving the LNG terminal project in Teluk Lamong, causing potential losses: IDR 383.2 billion (revenues) and net loss of IDR 241.9 billion from a GSPA transaction with PT Inti Alasindo Energy. This could negatively impact PGAS, especially if found guilty, reflecting poor corporate governance.

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