Perusahaan Gas Negara (PGAS.IJ) with target price Rp3600

Perusahaan Gas Negara (PGAS.IJ, BUY): 1H11 result in line, but operation disappointing
􀂃 Perusahaan Gas Negara posted 1H11 net profit of RpRp3,257b, up 2% y/y, in line with our expectation.
􀂃 Revenue declined by 1% y/y to Rp9,406b, while cost of sales and operating expenses ran faster, increasing at growth of 2% y/y and 21% y/y to Rp3,551b and Rp1,482b, respectively.
􀂃 As the result, gross and operating profits slipped by 2% and 11% y/y to Rp5,858b and Rp4,055b, respectively.
􀂃 Below operating line, the company was helped by higher gain from derivative contracts (Rp200b) higher interest revenue (Rp171b), lower interest expenses(Rp122b) and forex gain (Rp68b). The company also recorded lower 6% y/y tax at Rp1,074b.

Analyst comment:
􀂃 We recommend BUY on the counter with target price Rp3600, pegging the stock at 12.9x ‐11.9x FY11‐12 PER. The stock has been under major correction in the last month, which at current price might look attractive. But the downside risks remain in our view, given distribution gas volume is unlikely to improve any time soon.
􀂃 While bottom line is in line with our estimate, operating performance looks disappointing in our view. All the way down from top line to operating line have declined y/y, below our expectation.
􀂃 We believe the strengthening of Rupiah and weaker gas distribution volume are the main drivers. The company was helped by gains below operating level, which besides interest expenses are typically one‐offs.

source: KIM ENG dated 26 August 2011