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28 Juli 2022

PGAS IJ - MNC Sekuritas Equity Report July 28, 2022

Mapping PGAS Expansion
 
Margins Grew Strong Beating the Estimates
PGAS IJ posted revenue of USD836.92 mn (+14.15% YoY) in 1Q22, in-line with our estimates (24.50%/24.13% of our/cons FY22E estimates) with the biggest contributor being gas trading with USD609.74 mn (+2.25% YoY). Furthermore, the company also recorded an increase in the crude oil and natural gas sales to USD116.24 mn (+146.82% YoY). While the gas sales volume decreased slightly by -0.11% YoY, industrial consumption was recorded with a growth as the company reported its improvement in the industrial and commercial sales by USD603.74 mn (+2.02% YoY). Moreover, PGAS also recorded a rise of the oil and gas lifting by 48.39% YoY mainly coming from Pangkah block. Operating profit was recorded a growth to USD154.30 mn (+60.89% YoY), slightly above our estimates (27.91%/29.50% of our/cons FY22E estimates), making the operating margin to be 18.44% (vs 13.08% in 1Q21). Furthermore, net income was booked at USD118.55 mn (+27.35% YoY), beating our estimates (38.68%/49.83% of our/cons FY22E estimates), which translates to net profit margin of 14.16% (vs 12.70% in 1Q21), with the main contributor coming from forex gain.
 
Expansion Remains the Priority
• In FY21, PGAS had completed the Gresem (Gresik-Semarang) pipeline stretching for 275 km and costing IDR4 tn as part of the Jambaran Tiung Biru (JTB) project, which was targeted to facilitate industrial commercial sectors in Central Java and East Java.
• By 2Q22E, PGAS is also expected the 367 km Rokan pipeline to be fully operated after the first oil in trial from Duri Crude CGS10 to Meter Dumai Station had been succesfully operated. With this pipeline, PGAS hoped for the increase in the Rokan Block oil production and distribution.
• As a commitment to reinforce the natural gas infrastructure and reduce carbon waste in Indonesia, PGAS was working on the regasification project since FY21 to convert the usage of oil and coal as energy source for refineries and power plants to gas. In Aug-21, PGAS had completed RU VI Balongan for refineries purpose and planned to finish the construction of RU V Balikpapan and RU IV Cilacap by Jul-23F and Apr-24F, respectively. Meanwhile, for power plants purpose, PGAS planned to finish its phase 1 project in FY22E, which includes completing 6 clusters and 33 locations with volume of 83.74 BBTUD.
• Through Jargas project, PGAS hoped to construct natural gas network (jargas) reaching 17 sales area and 46 cities/regencies worth IDR215.99 bn by tender offer and separated into 5 packages. With this project, jargas is going to be connected into 40,733 households by FY22E. As of 1Q22, PGAS had contracted 5 packages, while 1 package was processed in tender.
• Meanwhile, SAKA recorded an increase in its average daily oil and gas production to 9.7 MBPD (+73.21% YoY) and 24.8 MBOEPD (+24.00% YoY), respectively with the main driver of this bigger production coming from Pangkah and Muriah. As of 1Q22, Pangkah PSC recorded an increase in its oil and gas production after completing its new wells drilling in West Pangkah, while Muriah PSC recorded an increase of its production after reworking A2 well.
• Following the allocated capex of USD90-110 mn in FY22E and the increasing global oil price, SAKA plans to complete Suisen 1 well exploration in Muriah PSC and drilling of four wells in Ketapang, which thus increasing its production rate at 30-35 MBOEPD (vs 29 MBOEPD in FY21).
 
Seizing for Natural Gas
As of 26-Jul, the natural gas price was recorded a significant increase by 123.95% YoY to USD8.82/MMBtu resulting from the relaxation of COVID-19 restrictions causing a higher energy demand and consumption, as well as the decrease of natural gas imports from Russia to the EU due to the geopolitics tension. Russia had been the biggest importer of natural gas in Europe by supplying 40% of total gas amount, thus halting the Russia's gas supply caused a huge amount of energy deficit in the EU. As a matter of fact, a natural gas capacity in Rehden, Germany, said to be Europe's largest gas storage facility, suffered a fall of gas capacity to only 5% (vs 87% average capacity before the shortage). Thus, with the upcoming winter season, the gas demand in the EU would potentially surge following the fall of the gas supply, where many European countries will start stocking up the gas supply on 2Q22E up to 3Q22E.
 
Maintain BUY with TP of IDR2,000
We recommend BUY with target price of IDR2,000 (+25% upside), implying FY22E EV/EBITDA of 4.68x. We see that PGAS is able to maintain its positive financial record in FY22E following the company's expansion on constructing Gresem and Rokan pipeline, Jargas project as well as its regasification project and SAKA's expansion in Pangkah and Muriah in 1Q22. Moreover, with the upcoming winter season and EU's stocking up its gas supply on 2Q22E-3Q22E, the natural gas price is expected to rise in FY22E, which might further boost the company's financial track
 
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