DAILY INSIGHT EQUITY RESEARCH

Tuesday, 29 May 2007 UTILITY/UPDATE

HOLD
Downgrade Perusahaan Gas Negara
Price Rp9,900
Target Price Rp 9,900
Upgrade
Raising concerns
Reuters Code PGAS.JK
Another downside surprise is possible
Bloomberg Code PGAS IJ
Progress in the SSWJ projects looks disappointing and we don’t think that PGAS will be able to
No. of shares (mn) 4,537.5
meet its own targets. Significant downside surprises are possible in our opinion. As such, we stick
Market cap (Rp bn) 44,921
with our own targets for the projects (CP gas to start in Oct 07 and SSWJ 1 to be completed in Oct
(US$ mn) 5,119
08) as the projects’ execution risks still look high.
Weight in JCI (%) 3.3
3m Avg. daily T/O (US$ mn) 13.8
Pressure on the supply side
Price (Rp) On the supply side, two things can put pressure on PGAS. The first is a shift of bargaining power
12 mos Hi/Lo 13,600/7,400 from customers to gas owners. This is reflected in the difficulties PGAS has had in securing new
gas contracts due to the high prices demanded by gas owners. No impact on the existing business,
PER 2007F (x) but concerns will be raised on PGAS’ future growth profile. The second issue relates to revisions
12 mos Hi/Lo 34.7/18.9
of the existing gas contracts, which, in our opinion, are being driven by PGAS’ profitability profile.
EV/EBITDA 2007F (x) With Pertamina reducing gas supplies to PGAS in West Java (which we think is more of a pricing
12 mos Hi/Lo 16.5/10.1 issue than a technical one), other suppliers may follow suit, putting pressure on PGAS’ earnings.

Key Financial 07F/08F

Weaker pricing power?
Net Gearing, % 161.1/95.6
ROAA, % 10.6/16.0 PGAS’ pricing power should remain intact in our opinion given its strong distribution networks
ROAE, % 29.7/42.4 that prevent competitors from replicating its business model. Pressures from industries will not
materialize in our view given the attractive pricing of gas. A bigger concern, however, is the
Price Relative to JCI (%) government’s continued pressure on PGAS not to hike gas prices, even though there is a lack of
1 mo -10.0
3 mos -7.3 economic and regulatory basis we believe. Although this issue had been anticipated due to PGAS’
6 mos -25.8 strong profitability, a quicker than expected timeframe could weaken PGAS’ bargaining position.
12 mos -46.8
Raising concerns, downgrade to HOLD
USD/IDR - YE (Rp)
2006 9,090 We downgrade FY07 core profits by 9% on lower gas volume, lower selling price, and better gas
2007F 9,291 costs. Going forward, we do not significantly change our core earnings forecasts as lower gas
volume is compensated by better gas costs.
Major shareholders (%)
Govt. of Indonesia 55.0
Est. free float 45.0 Our YE07 target price has been raised slightly to Rp9,900, implying FY07-08 23.2-13.6x core earnings
Rp PGAS (LHS) Relative to JCI (RHS)
but downgrade our call to HOLD on a lack of confidence in the Company (leading to unpredictable
16,000 10% downside risks) coupled with changes in the industry as well. Execution and delivery of promises
14,000
12,000
0%
are key to better performance we believe. Thus, the upcoming shareholders’ meeting which
-10%
10,000
-20%
promises a change in the composition of the management could be the catalyst to restoring
8,000
6,000
-30% investor confidence.
4,000 -40%

-50%
2,000
- -60%
Year end to Dec 2005 2006 2007F 2008F 2009F
2/5/2007
5/29/2006

7/10/2006

8/21/2006

10/2/2006

3/19/2007

4/30/2007
11/13/2006

12/25/2006

Revenue, Rp bn 5,434 6,632 9,006 14,051 18,960

EBITDA, Rp bn 2,140 2,929 4,412 7,119 10,120
Net profit, Rp bn 862 1,893 1,801 3,276 5,368
Core profit, Rp bn 939 1,521 1,964 3,424 5,544
Isnaputra Iskandar, CFA EPS, Rp 194 419 392 696 1,146
(62-21) 350 9888 ext.3504 EPS growth, % 81.7 115.6 (6.6) 77.7 64.8
isnaputra@danareksa.com Core EPS, Rp 212 337 427 727 1,184
Core EPS growth, % 61.4 59.0 26.8 70.3 62.8
Danareksa research reports are also PER, x 50.9 23.6 25.3 14.2 8.6
available at Trapeze and First Call Direct. Core PER, x 46.8 29.4 23.2 13.6 8.4
Yield, % 0.5 1.1 2.1 1.9 3.5
EV/EBITDA, x 21.6 17.6 12.7 7.7 4.8

www.danareksa.com
29 May 2007 DAILY INSIGHT

Exhibit 1. Change of frorecast

FY07 FY08
Gas volume, mmcfd
Old assumption 523 793
New assumption 427 682
Changes, % -18 -14

Gas selling price, US$/mmbtu

Old assumption 5.2 5.4
New assumption 5.1 5.2
Changes, % -3 -3

Gas purchase price, US$/mmbtu

Old assumption 2.9 2.9
New assumption 2.5 2.5
Changes, % -14 -15

Revenues, Rp bn
Old assumption 11,200 17,201
New assumption 9,006 14,051
Changes, % -20 -18

COGS, Rp bn
Old assumption 5,400 8,290
New assumption 3,702 5,856
Changes, % -31 -29

EBITDA, Rp bn
Old assumption 4,749 7,486
New assumption 4,412 7,119
Changes, % -7 -5

Core profit, Rp bn
Old assumption 2,155 3,546
New assumption 1,964 3,424
Changes, % -9 -3

Source: Danareksa Sekuritas

2
29 May 2007 DAILY INSIGHT

Share price and Recommendation

Date 1-Nov-06 15-Nov-06 10-Jan-2007 16-Jan-07 29-May-2007

Rec. BUY BUY BUY BUY HOLD
Price Target, Rp 14,300 15,850 15,400 9,400 9,900

15,000
13,000
11,000
9,000
7,000
5,000
3,000
1,000
5/26/2005

7/7/2005

8/18/2005

9/29/2005

11/10/2005

12/22/2005

2/2/2006

3/16/2006

4/27/2006

6/8/2006

7/20/2006

8/31/2006

10/12/2006

11/23/2006

1/4/2007

2/15/2007

3/29/2007

5/10/2007

DISCLAIMER
The information contained in this report has been taken from sources which we deem reliable. However, none of P.T. Danareksa Sekuritas and/or its affiliated companies and/or
their respective employees and/or agents makes any representation or warranty (express or implied) or accepts any responsibility or liability as to, or in relation to, the accuracy or
completeness of the information and opinions contained in this report or as to any information contained in this report or any other such information or opinions remaining
unchanged after the issue thereof.
We expressly disclaim any responsibility or liability (express or implied) of P.T. Danareksa Sekuritas, its affiliated companies and their respective employees and agents whatsoever
and howsoever arising (including, without limitation for any claims, proceedings, action , suits, losses, expenses, damages or costs) which may be brought against or suffered by
any person as a results of acting in reliance upon the whole or any part of the contents of this report and neither P.T. Danareksa Sekuritas, its affiliated companies or their respective
employees or agents accepts liability for any errors, omissions or mis-statements, negligent or otherwise, in the report and any liability in respect of the report or any inaccuracy
therein or omission therefrom which might otherwise arise is hereby expresses disclaimed.
The information contained in this report is not be taken as any recommendation made by P.T. Danareksa Sekuritas or any other person to enter into any agreement with regard to
any investment mentioned in this document. This report is prepared for general circulation. It does not have regards to the specific person who may receive this report. In considering
any investments you should make your own independent assessment and seek your own professional financial and legal advice.