|
Good morning,
Perusahaan Gas
Negara – Another Downside Surprise On Distribution Margin
PGN recorded a 2Q17
net loss of IDR41.2m – below our and consensus estimates – driven by a high
quarterly ETR and contractions in both its gas distribution volume and
distribution dollar margin, which were below management’s guidance. Other
than the disappointing performance, we do not see any positive catalysts for
the immediate term. Thus, we downgrade our recommendation to NEUTRAL (from
Buy) and cut our DCF-based TP to IDR2,000 (from IDR3,450, 6% downside), post
the corresponding 40% reduction in our FY17-18 earnings estimates.
¨ Volume declined
after non-renewal of Muara Tawar contract. Perusahaan Gas Negara’s (PGN)
distribution volume as of 6M17 declined 8.2% QoQ or 5.9% YoY. This was due to
the non-renewal of Perusahaan Listrik Negara’s (PLN) Muara Tawar power plant
gaspurchase agreement which expired in March (the contracted amount was
approximately 100mmscfd at USD7.90/mmbtu). While PGN did not officially
announce this, the market was informed through PLN’s announcement and
analysts speaking to management separately. Thus, we believe the market has
priced in the decline in volume, but not the further erosion in distribution
margin.
¨ Distribution margin
at a new low, back-loading of opex and high effective tax rate (ETR). PGN's 2Q17
revenue/gross profit fell 10.9%/28.8% QoQ respectively, and it recorded a net
loss of USD41.2m. Its gross margin narrowed to 23.7% (1Q17: 29.7%).
Based
on our calculation, its 2Q17 blended gas distribution margin hit a new low of
USD2.32/mmbtu (1Q17: USD2.58/mmbtu) on a lower distribution ASP of
USD7.95/mmbtu (1Q17: USD8.56/mmbtu).
Opex
surged 82.4% QoQ. PGN also recorded another impairment loss of USD16.7m on
its oil and gas assets.
¨ Gas distribution
price is declining without intervention. PGN's declining ASP is a major
headwind in sustaining its guided distribution margin of USD2.60-3.00/mmbtu,
even without direct intervention. There is still pressure from industrial
users asking for a lower natural gas price – and the issue is further
exacerbated by pressure from the power sector which forms the bulk of its
demand. From our conversation with some business owners and judging from
PGN's distribution volume breakdown, both industrial and power sector demand
for natural gas remains weak.
¨ No visible positive
catalyst; downgrade to NEUTRAL. PGN is now trading at 15.5x/13x
FY17F/FY18F P/Es, on our revised estimates - ie valuations are no longer
cheap. We roll over our DCF base year to FY18, while our new TP of IDR2,000
implies 12.5x FY18F P/E. We believe PGN may eventually become a high crude
oil beta stock, due to the expansion of its exploration and production arm,
Saka Energi (which now contributes to 15% of revenue but is not profitable).
That said, its gas distribution business outlook remains unclear at this
juncture. (Norman Choong, CFA)
Link to daily
report: Indonesia Morning Cuppa 040917
|
|
Economics Update:
|
|
Economic Stimulus Package XVI: Acceleration
of Business Permits Issuance
The government issued the 16th economic
package to accelerate the issuance of business permits. The government will
create task force – which will be formed as soon as possible – to settle
obstacle in business permit process. Supporting Task Force will be on duty in
2017 only, then it will be replaced by Single Submission System in an
Integrated One-Door Service (PTSP).
According to World Bank, required time to
start a business in Indonesia has improved to 25 days in 2016 (from 76 days
in 2013). However, it is still longer than Malaysia which required merely 19
days to start a business. Hence, the above 16th economic stimulus package
which should accelerate time to start a business should be positive to
accelerate economic.
Key highlights of Economic Stimulus Package
XVI
The Government has released the 16th
economic stimulus package to accelerate the issuance of business permits. The
package is divided into two stages, Stage 1 and Stage 2.
Stage 1:
A. The formation of
task force to settle obstacles in business permits process
¨ Task
force is formed in the national level, ministry level, provincial level, and
the city level
¨ National
level task force coordinates the task force in the lower levels
¨ Lower
level task forces are divided into Leading Sector task force and Supporting
Sector task force
¨ Leading
sectors include the Ministry of Energy and Minerals, Agriculture, Maritime,
Industrials, and Transportation
¨ Supporting
sectors include the Ministry of Agraria, Finance, and Environments.
B. The implementation
of checklist for business permits needed for Special Economic Zone (KEK),
Free Trade Zone (FTZ), Industrial Estate, and Tourism Zone
C. The implementation
of data sharing for business permits
¨ For
businesses in the areas that are yet to implement a checklist, the processing
of permits can use a data sharing system.
¨ To
apply for permits, businesses only need to apply to Integrated One-Door
Service (PTSP) once, and it will be shared by PTSP to other institutions
D. Timetable for Stage
1
¨ Task
forces will be formed as soon as possible
¨ National
Task Force and Leading Task Force will be on duty in 2017 onwards
¨ Supporting
Task Force will be on duty in 2017 only, and it will be replaced by the
single submission system
Stage 2:
A. The reform of
business permits regulation
¨ Ministers,
Governors, and Majors must evaluate all business permits regulations
¨ Regulations
must include PTSP standards and a complaint center
B. The implementation
of single submission system
¨ All
business permits processing must go through the Single Submission System
which is standardized nationally.
¨ The
system will be integrated with other systems such as the population
identification number (NIK), business startups, export-import system, etc.
C. Timetable for Stage
2
¨ Regulation
reforms targetted to complete by November 2017
¨ Single
Submission system to undergo trial in 1 January 2018 with implementation by
March 2018 the latest
¨ Single
Submission and PTSP processes will take place in one building (Andrey Wijaya)
|
|
Company Update:
|
|
Astra International
(ASII IJ, BUY, TP: IDR9,200), Rising Auto Competition, Promising Mining
Units
New MPV launches
Mitsubishi Xpander and Wuling Confero have intensified
competition in the auto industry. However, strong heavy equipment sales and
mining contractor performance should partially offset lower auto earnings.
Despite the short-term bumps, Astra is likely a key beneficiary of the EV and
LCEV programmes now being discussed. Astra’s extensive manufacturing
facilities make it the most compliant. Maintain BUY. As we cut earnings
estimates, our TP is now IDR9,200 (from IDR9,850, 16% upside), implying 17x
FY18F P/E.
¨ Rising competition
in auto industry.
Since its launch (on 10 Aug), Mitsubishi Motors Krama Yudha Sales Indonesia
(MMKSI) reported that low-MPV Mitsubishi Xpander sales orders achieved
>11,500 units in just two weeks. Going forward, MMKSI targets to sell
3,000-4,000 Xpander units/month. We view this as likely to take the
market share of Toyota Avanza, Daihatsu Xenia, Honda Mobilio
& BRV, and Suzuki Ertiga. MMKSI’s monthly sales target is
c.22%-30% of Avanza and Xenia average monthly sales, or c. 6-8%
of Astra International’s (Astra) total average monthly four-wheel (4W) sales
in 1H17.
A
new competitor to the low-cost green car (LCGC) MPV segment is Wuling Confero.
Although at the Gaikindo Indonesia International Auto Show (GIIAS) it merely
sold 624 units (below Wuling’s target), we believe Confero still has
the potential to pressure sales of Toyota Calya and Daihatsu Sigra
(under Astra). Our ground checks with Auto 2000 dealers reveal that
Astra’s discount was higher in August, after the launching of Xpander
and Confero.
¨ Strong mining
contracting volume and heavy equipment sales. We observe that
the replacement cycle of heavy equipment has just started this year, and it
should continue until 2019. Hence, strong heavy equipment sales to the coal
mining sector may follow suit, as the company has a sizable backlog order for
its heavy mining equipment. For the mining contractor segment, we believe
mining contracting volume would continue to grow for the rest of the year.
This should be positive for Astra’s consolidated revenue and earnings,
partially offsetting potential lower earnings from the auto division.
¨ The most ready to
take on the new LCEV and EV programmes. We think that Astra is likely a key
beneficiary of the Government’s proposed low carbon emission vehicle (LCEV)
and electric vehicle (EV) programmes. Incentives for these programmes are
currently being discussed by the Government. Notably, the Ministry of
Industry has proposed to portion the incentive according to the vehicles’
pollution levels. It would also compel vehicles to be locally manufactured
with a high local spare-part content. Astra, via its subsidiaries Astra
Daihatsu Motors (31.9%-owned) and Astra Otoparts (80%-owned), has extensive
manufacturing facilities, thus making it the most ready to comply.
¨ Maintain BUY with a lower
SOP-based TP of IDR9,200 implying 17x FY18F P/E (on reported EPS). We cut our
FY17-18 earnings estimates to IDR19trn and IDR22trn (-5%/-7%) respectively,
following the rising auto competition, which intensified in August. Main
risks to our call are weakened consumer spending and IDR depreciating against
USD. (Andrey Wijaya)
Arwana Citramulia
(ARNA IJ, BUY, TP: IDR550), Record-breaking monthly sales
Arwana’s management
said that its August monthly sales volume broke a new record, achieving 4.5m
sqm (+2% MoM, +7% YoY). YTD, 8M17 sales reached 33.5m sqm (+12% YoY).
Maintain BUY with IDR550 TP (28% upside) which implies to 17x FY18F P/E. (Andrey Wijaya)
|
|
Media Highlights:
|
|
Corporate
Financial closing of
three projects to be accelerated this month
Lower tobacco excise
tax revenue in August
Saratoga sees
dropping net income
Adira targets
IDR33trn of financing in 2017
Bank Bukopin books
IDR545bn net income in 7M17
|
|
Our
Recent Publication:
|
|
Sector Update: Coal Mining – Headwinds from
PLN
Link to report: Headwinds
From PLN
|
|
Results Review: Adaro Energy – Strong 2Q17
Earnings
Link to report: Adaro
Energy : Strong 2Q17 Earnings
|
|
Company Update: Ramayan Lestari – Closing
10 Supermarkets To Benefit Earnings
Link to report: Ramayana
Lestari : Closing 10 Supermarkets To Benefit Earnings
|
|
Company Update: United Tractors – Increasing Growth
Of Mining Contracting Volume
Link to report: United
Tractors : Increasing Growth Of Mining Contracting Volume
|
|
Results Review: Bekasi Fajar – Expect To Maintain Its
Performance In 2H17
Link to report: Bekasi
Fajar : Expect To Maintain Its Performance In 2H17
|
|
Economics Update: BI Cuts Key Policy Rate, Maintains
Neutral Stance
|
|
Company Update: Sarana Menara Nusantara – M&A
Galore
|
|
Economics Update: Exports And Imports
Rebounded in July After Festivities
Link to report: Exports
And Imports Rebounded in July After Festivities
|
|
Economics Update: CAD Continues To Widen In
2Q17, BOP Surplus Declines
Link to report: CAD
Continues To Widen In 2Q17, BOP Surplus Declines
|
|
Company Update: Summarecon Agung – Targets Cut Amid
The Low Achievement
Link to report: Summarecon
Agung : Targets Cut Amid The Low Achievement
|
Best regards,
Andrey Wijaya
Senior Vice President
Research Analyst – Auto, Consumer, Cement
PT RHB Sekuritas Indonesia
Disclaimer: This message is intended only for the use of the individual or entity to whom it is addressed and may contain information that is confidential and privileged. If you, the reader of this message, are not the intended recipient, you should not disseminate, distribute or copy this communication. If you have received this communication by mistake, please notify us immediately by return email and delete the original message. This message is transmitted on the condition that the recipient accepts the inherent risks in electronic data transmission and agrees to release RHB group and RHB Securities from any claim which the recipient may have as a result of any unauthorized duplication, reading or interference with the contents herein. The contents herein are made in the personal capacity of the above-named author and nothing herein shall be construed as professional advice or opinion rendered by RHB group and RHB Securities or on its behalf.
