Introduction to Perusahaan Gas Negara (PGAS)

Perusahaan Gas Negara (PGAS), a subsidiary of Pertamina, is the leading natural gas distributor in Indonesia, commanding a 91% market share as of 9M24. With a vast infrastructure of 13,458 km of gas and oil pipelines, PGAS primarily serves industrial sectors like power, food, and chemicals, with plans to further expand into household markets. This article delves into the company’s market position, financial performance, strategic initiatives, and investment potential.

Investment Recommendation

Maybank Sekuritas Indonesia initiates coverage of PGAS with a “BUY” recommendation, supported by a discounted cash flow (DCF)-based target price (TP) of IDR 2,000, representing a potential upside of 26% from its current share price of IDR 1,585. The endorsement is underpinned by stable revenue forecasts, strong free cash flow generation, and attractive dividend yields projected at 11.3% for FY25 and 11.5% for FY26.

Market Leadership and Growth Opportunities

PGAS has cemented its position as a market leader in Indonesia’s gas distribution sector. Serving 74 cities and municipalities, its distribution network includes 12,853 km of gas pipelines and 605 km of oil pipelines. In addition to its core distribution business, PGAS is diversifying its portfolio through upstream oil and gas exploration (via Saka Energi Indonesia) and midstream operations like LNG regasification facilities in Arun and Lampung.

The company plans to execute three major projects aimed at sustaining growth:

• Tegal-Cilacap Gas Pipeline: A 116-km pipeline connecting North Java to South Java, targeting completion by 2Q26 with a capacity of 36 MMSCFD.
• Cikampek-Plumpang Oil Pipeline: A 96-km fuel pipeline with a capacity of 4.6 billion liters per year, expected to commence operations in 1Q27 under a build-maintenance-transfer scheme.
• Arun LNG Hub: A strategic LNG terminal positioned to become Asia’s leading LNG hub by 2030, with plans to add a 127,000 m³ LNG tank by 1Q25.

Financial Overview and Forecasts

PGAS’s financial performance reflects its stable and predictable business model, with a forecasted revenue of USD 2.9 billion for FY25, marginally up from USD 2.896 billion in FY24. Key revenue contributors include:

• Gas Distribution: Contributing 70% of total revenue.
• Oil and Gas Sales: Accounting for 16%.
• Gas Transmission: Representing 10% of revenue.

The company anticipates steady gas sales growth, with volumes increasing at a CAGR of 1.7% from FY23-26, reaching 876 BBTUD in FY26. Average selling prices (ASP) for gas are expected to rise slightly to USD 8.06/MMBTU in FY25, driven by a higher LNG mix (5% in FY25 compared to 3% in FY24).

PGAS’s net profit is projected to grow by 1.9% YoY in FY25 and 1.8% YoY in FY26, supported by widening gas spreads, which are forecasted to reach USD 1.74/MMBTU in FY25 and USD 1.8/MMBTU in FY26.

Dividend Prospects

PGAS stands out for its robust dividend payouts. Dividends per share (DPS) are forecasted at IDR 251 for FY25 and IDR 260 for FY26, translating into yields of 11.3% and 11.5% respectively. The company’s strong free cash flow ensures its ability to sustain high dividend payouts while maintaining financial flexibility for reinvestments and debt repayment.

Environmental, Social, and Governance (ESG) Initiatives

PGAS demonstrates a strong commitment to ESG principles by implementing Good Corporate Governance (GCG) practices. Key environmental achievements include:

• Emission Reduction: Achieved a reduction of 598.4 CO2eq in FY23, up from 220 CO2eq in FY22.
• Energy Efficiency: Reduced energy intensity from 447.1 GJ/MMSCFD in FY22 to 415.1 GJ/MMSCFD in FY23.
• Waste Management: Lowered hazardous waste generation to 13,607 tonnes in FY23, compared to 14,646 tonnes in FY22.

Social initiatives include increased employee engagement and customer satisfaction, as well as social investments rising to IDR 66.6 billion in FY23. However, areas like the community satisfaction index, which declined in FY23, present opportunities for improvement.

Key Risks and Challenges

Despite its strengths, PGAS faces several risks:

• Legal Disputes: An ongoing arbitration case with Gunvor Singapore concerning an LNG supply contract could impact financials, though provisions have been made.
• Market Absorption: Elevated gas prices may reduce distribution volume absorption.
• Economic Slowdowns: Could suppress gas demand and affect revenue streams.
• Policy Changes: Government regulations related to gas pricing and quotas could alter profitability.

Conclusion

Perusahaan Gas Negara is well-positioned as Indonesia’s leading natural gas distributor, with a solid growth trajectory backed by strategic projects and a stable financial outlook. The company’s attractive dividend yields and ESG initiatives further enhance its investment appeal. While challenges such as legal disputes and market absorption risks exist, PGAS’s robust market position and diversified operations provide a strong foundation for long-term growth.