On Tuesday, JPMorgan upgraded shares of PT Perusahaan Gas Negara Tbk (PGAS:JK) (OTC: PPAAF) from Underweight to Neutral, adjusting the price target to IDR1,370.00 from IDR1,090.00.
The upgrade follows a robust first-quarter earnings report for 2024, which showed a 41% year-over-year increase. The improvement was largely credited to a significant rise in gas distribution margins, which reached $2.25 per million British thermal units (mmbtu) compared to $1.6/mmbtu in the same quarter of the previous year.
The strong performance of PT Perusahaan Gas Negara's gas distribution margins is attributed to two main factors. Firstly, the current gas supply constraint, which saw a 12% year-over-year decrease, led to a lower volume quota for customers. This in turn allowed the company to impose surcharge fees for gas quantities exceeding the allocated quota.
Secondly, the company benefited from lower gas costs resulting from the new contract for the Corridor Block, which secured a rate of $5.4/mmbtu, down from the previous $5.9/mmbtu.
In light of these factors, JPMorgan has raised its full-year 2024 and 2025 earnings estimates for PT Perusahaan Gas Negara by 20-30%, to reflect the higher distribution margin estimates. The firm's 2024 earnings estimate is now 10% above the consensus before the earnings were reported.
However, the analyst noted that an 11% spike in the company's share price, which contrasted with a 1% increase in the Jakarta Composite Index (JCI), might have already priced in the positive earnings surprise. The 2025 earnings per share (EPS) estimate aligns closely with the consensus.
The analyst from JPMorgan anticipates that the first-quarter gas distribution margin will likely be the peak for the year. The company is expected to begin using a liquefied natural gas (LNG) blend to compensate for the lower gas supply starting in the late second quarter of 2024.
The new price target of IDR1,370 is based on a sum-of-the-parts (SOTP) valuation, implying 7 times the projected earnings for 2024.
InvestingPro Insights
Following the recent upgrade by JPMorgan, PT Perusahaan Gas Negara Tbk (PGAS:JK) (OTC: PPAAF) has caught the attention of investors looking for opportunities in the energy sector. With a focus on the company's financial health and market performance, InvestingPro provides additional insights that could be crucial for investors considering PGAS.
One of the most compelling InvestingPro Tips for PGAS is its attractive valuation. The company is currently trading at a low EBITDA valuation multiple, which suggests that it may be undervalued relative to its earnings before interest, taxes, depreciation, and amortization. This, combined with a valuation that implies a strong free cash flow yield, indicates that PGAS could offer a significant return on investment through both operational performance and potential market revaluation.
InvestingPro Data further reveals the company's market dynamics. Despite a challenging year, with a 1 Year Price Total Return as of the end of 2024 showing a -95.45% decline, PGAS is trading near its 52-week high, at 9.09% of that value. This could signify a turning point for the company as it recovers from previous lows. Moreover, the fact that analysts predict the company will be profitable this year, coupled with its profitability over the last twelve months, could provide a solid foundation for future growth.
For investors interested in dividend-paying stocks, another InvestingPro Tip highlights that PGAS pays a significant dividend to shareholders. This can be an attractive feature for income-focused investors, particularly in the current environment where steady income streams are highly valued.
With these insights, investors may want to delve deeper into PGAS's financials and market performance. For further analysis and additional InvestingPro Tips, which currently number 9 for PGAS, visit InvestingPro at https://www.investing.com/pro/PGAS. Remember to use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, enhancing your investment research with premium insights and data.
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