We downgrades Perusahaan Gas Negara Tbl (PGAS) to UPF (from OPF) as the stock goes ex-growth for next two years. We cut our TP from Rp4,650 to Rp3,700.
The current weakness in the stock price is because of the partial diversion of Conoco Phillips volume from PGAS to Chevron. PGas’s current contracted amount from Conoco Phillips is 375mmscfd, but Conoco Phillips is delivering only 300mmscfd currently to PGAS. Upstream oil and gas regulator BP Migas confirmed that PGAS is unlikely to get the gas from Conoco Phillips back anytime soon.
PGAS should have benefitted from higher energy prices. Plus in the period of high volatility, PGAS is supposedly very defensive as the company has the supply and demand of gas (supposedly) secured. Well, demand for gas is never a problem. But supply is trickier.
The Conoco event potentially highlighted an added layer of risk: supply of gas is not that secure, regardless what the contract says.
Key points from the report:
- Volume cuts to reflect this (2011: -50mmscfd / 2012: -100mmscfd) impacted earnings by -6% in 11CL and -12% in 12CL
- Days of super margins are over, and LNG margins will be much lower as PGAS moves to a cost plus business model
- Construction of West Java LNG receiving terminal should be completed in 2H12, with current gas supply agreement of 130mmscfd (1/3 of capacity) with Bontang
- Press report that Indo will start importing 4.5m tons of LNG starting in 2013 opens up potential for PGAS to import gas
- Downgrade to Under-Perform as little growth for the next 2 years. TP Rp3,700 indicates -1% downside, is priced at 20% discount to DCF
Analysis by ; CLSA