PGAS IJ - MNC Sekuritas Equity Report 30 June 2021

PT Perusahaan Gas Negara Tbk (PGAS)

Starting to Recover

Bottom Line Solid in First Quarter 2021

• PGAS posted revenue of USD733.15 million dropped by 16.10% YoY in 1Q21 (vs USD873.8 million in 1Q20). This is due to the price restriction of USD6/mmbtu that is dragging down the top-line.
• However, commercial gas volume increased by 3.85% YoY, mainly due to increased demand from recovering commercial industrial activity and coal supply shortage in 1Q21.
• Net Income grew by 28.88% YoY to USD61.57 million in 1Q21 (vs USD47.77 million in 1Q20) with a net profit margin of 8.40% (vs 5.47% in 1Q20). Thanks to the cost efficiencies and JV forex gain.

Business Optimization Take Advantage of Recovery Momentum

• PGAS targets the completion of the 367km Rokan oil transmission pipeline capable of distributing 200,000-265,000 bopd in 3Q21E, and the 267km Gresik to Semarang pipeline with a maximum capacity of 400 mmscfd targeted for commercial operation in 4Q21E.
• PGAS targets the completion of the Senipah-Balikpapan pipeline project in 1Q23F, which increases efficiency to 194 mmscfd at the Balikpapan refinery.
• The company will also support the refinery development master plant (RDMP) program, by building a small land-based LNG Regasification Terminal facility in Cilacap targeted to operate in 2H22F.
• Saka will optimize gas distribution to the Tambak Lorok power plant with a potential distribution of 10-15 bbtud. On the other hand, if PGAS does not pay a tax dispute penalty of USD127.7 million, it would be a good surprise. This is inline with PGAS’s strategy to allocate a higher capex of USD490-USD620 million in FY21E.
• We assess that the optimization carried out by PGAS is quite appropriate, supported by activities that return to normal after Covid-19. In the long term, we see the demand for LNG segment will be promising for the next 20 years, due to cleaner energy and distribution flexibility so that demand is estimated to reach >500 million tons/year in 2040F.

Potential Risk of from Rising Commodity VAT

The government plans to impose a VAT rate on mining products, which has previously been implemented on coal. We assess that the plan has the potential to have an impact on decreasing demand, if implemented in a short time. Moreover, the distribution of PGN is mostly absorbed by the micro industry, which is expected to maintain the stability of PGAS distribution in FY21E/FY22F.

Recommendation BUY for PGAS with Target Price of IDR1,600

We recommend BUY for PGAS IJ with TP: IDR1,600, which implied EV/EBITDA FY21E/FY22F at 5.39x/4.92x. We assess that if PGAS is able to get past the point of a tax dispute, PGAS will receive good benefits from the economic recovery. In this issue, PGAS has reserved the provision for the tax dispute. The latest news of the supreme court won the directorate general of taxes in this matter. Risk to our call: 1) Delayed capex; 2) Unfavourable Regulation; and 3) Volatility prices.

PGAS