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Good morning,
Perusahaan
Gas Negara – Disappointing Quarter, Investment Thesis Intact
While PGN's earnings
base is now at its lowest in the past five years, upcoming improvements are
likely, amid higher crude oil prices and the potential uptick of economic
activity, driven by higher commodity prices. Post results, we maintain our
BUY call with a lower TP of IDR3,450 (vs IDR4,000, 36% upside) on the back of
14.8% and 12.2% reductions in FY17-18 earnings estimates respectively.
 No direct intervention but difficult to raise prices. Speaking
to Perusahaan Gas Negara’s (PGN) management post 4Q16 results, we understand
it is now in a situation where any price increase could be deemed politically
sensitive to the Government. Nevertheless, the Ministry of Energy and Mineral
Resources has told the public that Indonesia’s natural gas price is
competitive, and still within the average global pipe gas price curve of
USD6-12/mmbtu, given poor infrastructure.
PGN's 4Q16's blended distribution spread of
USD2.57/mmbtu and distributed volume of 825mmcfd has reflected its new supply
agreement to state power producer Perusahaan Listrik Negara’s (PLN) Muara
Tawar power plant, ie lower price but higher volume. Usage from industrials,
however, is still weak, and any price increases are perceived unfavourably by
the Government. This prompts us to lower our FY17F blended distribution
spread. Management does not rule out an increase in its blended spread, as
guidance of USD2.5-3/mmbtu is still in place. However, upside would be driven
by recovery of industrial volume and higher competing feed stock price.
Forecasts. We reduce our FY17F-18F earnings by 14.8% and 12.2%
respectively, and now assume FY17-18 blended spread of USD2.65 and USD2.80
per mmbtu (from USD2.90/3.00), while maintaining our volume assumptions. On
the earnings revision, our DCF-based TP adjusts accordingly to IDR3,450
(WACC: 8.5%, TG: 3%), implying 15x FY17F P/E. 4Q16 disappointed… on a significant jump of quarterly opex,
impairment charge, and lower YoY blended distribution margin. Quarterly
operating income was only USD39.6m, due to the 131.3% QoQ increase of opex,
while opex of USD183m was the highest in the past five years. Other elements
that contributed to the poor showing were the additional USD15m of impairment
on oil and gas assets and the lower-than-expected blended distribution
spread. … but investment thesis intact. We believe most of the
negatives are priced in and gas price intervention should not be a drag to
its valuation, given the clarification by the Ministry as mentioned above.
PGN now trades at 11x FY17F earnings, vis-à-vis its 5-year historical mean of
13x. Meanwhile, FY17F earnings are set for high double-digit growth, due to
the low base effect of FY16. Downside risks are mainly on the negative news from the
potential merger with Pertamina, although news flow on this has been quiet
since mid-2016. (Norman Choong, CFA)
Link
to Daily report: Indonesia Morning Cuppa 220317
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Results Review:
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Bumi Serpong Damai (BSDE IJ, BUY, TP: IDR2,650), Catalyst To Propel Growth
We believe BSD’s
performance should improve this year following last year’s catalysts, which
are already in place. In addition, mortgage rates have been more competitive
and we believe they would be able to attract buyers into purchasing property.
We estimate the company’sYTD marketing sales have reached IDR1,347bn or 19%
from its target based on several launches since Jan 2017. We make no
adjustment to our forward assumptions. Maintain BUY with a IDR2,650 TP (44%
upside) implying a 50% discount to RNAV.
2017 is the year to be positive. We believe Bumi Serpong
Damai’s (BSD) performance should improve this year following last year’s
catalysts, which were already in place. In addition, mortgage rates have been
more competitive and we believe they would be able to attract buyers to
purchase property. This is evident by the shift of buyers payment methods
towards mortgage, from in-house cash installment as mentioned in our previous
report Towards
a More Positive 2017. We estimate the company’s YTD marketing sales
were at IDR1,347bn or 19% from its target, based on several launches since
Jan 2017. Tax amnesty have been insignificant in the sector. The tax
amnesty program is at its last leg before the finish line by end-March.
However, we have yet to see significant property purchases from this
programme. Thus, we see possibilities that funds would begin to re-route from
banks to the sector after March and may translate into more presales. Maintain BUY and TP IDR2,650.BSD is currently trading at a 65%
discount to RNAV, or -1.5SD from the average discount to its RNAV of53%. Our
TP implies 19.1-16.7x P/Es for FY17F-18F. The key downside risk to our call
is an economic slowdown leading to declining purchasing power of properties.FY16 results. BSD booked an impressive 46%/55% YoY growth on
4Q16 revenue/earnings respectively which lifted 4Q16 net margin to 28% from
26.5% in 4Q15. Nonetheless, full-year 2016 net income came in below
our/street estimates on slower revenue bookings and higher operational costs.
(Yualdo Tirtakencana)
Link to report to be
sent out later
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Media Highlights:
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Corporate
Financial Services
Authority (OJK) limits operational activity of Bank Tabungan Negara
Financial Services
Authority (OJK) temporarily bans all cash outlet of Bank Tabungan Negara
(BBTN IJ, BUY, TP: IDR2,600) to serve new opening account for saving, current
accounts, and deposits. The decision was made by the FSA related to
allegation of embezzlement of customer fund through a fictitious deposit
slips scheme.Asides from that, FSA also bans all cash outlet of the bank to
seek funding through sales forces. The limitation is valid until the bank’s
internal control is getting better and the operational risks is declining. (Kontan)
Comment: We view
limited downside risks as OJK only prohibit the opening deposits accounts at
cash outlets level. So the new accounts opening activities would be shifted
to one level higher above cash outlets, i.e. sub-branch offices and branch
offices. Please also noted that in 2016, BTN only add 20 sub-branch outlets,
15 sharia outlets and 1 priority outlets.While lending activities would
remain intact due to its main focus in subsidised mortgages segment. We
assume 21% YoY growth in subsidised mortgages while total loan book would
grow by 17.1% this year. Buy maintained with GGM-derived IDR2,600TP (1.27x
2017 P/BV). (Eka Savitri)
Ramayana set to sell
its treasury shares
Link Net FY16’s net
profits jumped by 28% YoY
Japfa Comfeed to
issue global bond
Mayora posts
IDR1.35trn in net income
Duta Pertiwi books
IDR703.67bn in profits
Chandra Asri to
build an integrated petrochemical complex worth USD4-5bn
Krakatau Steel is
optimistic to record net profits this year
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Our
Recent Publication:
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Results Review: Unilever Indonesia – Higher
ASPs Likely To Boost Margin
Link to report: Unilever
Indonesia – Higher ASPs Likely To Boost Margin
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Company Update: Bank Tabungan Negara – A
Bright Future Lies Ahead
Link to report: Bank
Tabungan Negara – A Bright Future Lies Ahead
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Results Review: Indocement Tunggal Prakarsa
– Competition Likely To Remain Intense
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Economics Update: BI Holds Key Policy Rate
In March
Link to report: BI Holds Key Policy Rate In March
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Corporate News Flash: Bank Rakyat
Indonesia: New CEO, No major Kitchen-Sinking Expected
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Company Update: Arwana Citra Mulia –
Building a Path To Recovery
Link to report: Arwana Citra Mulia : Building a Path To Recovery
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Results Review: Bukit Asam – Further
Earnings Boost From Cheaper Contractor Fees
Link to report: Bukit
Asam : Further Earnings Boost From Cheaper Contractor Fees
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Results Review: Indosat – Freedom For Less
Link to report: Indosat : Freedom For Less
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Sector Update: Oil and Gas – The
Double-Edged Sword
Link to report: Regional
Oil & Gas : The Double-Edged Sword
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Economics Update: Exports and Imports
Moderate In February
Link to report: Exports
And Imports Moderate In February
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Results Review: Bank BCA – To Maintain Its
Conservative Stance
Link to report: Bank
Central Asia : To Maintain Its Conservative Stance
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Best regards,
Helmy Kristanto
Director
Head of Indonesia Research
PT. RHB Securities Indonesia
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