Pertamina Geothermal Energy (PGEO IJ)

Expect strong growth in 2025F onwards

• PGEO has already secured additional PPA for a total of 285 MW of expansion capacity.
• We slightly lowered our FY24F earnings by -4.3% to account for the impact of maintenance, but expect strong growth of 17.8% in FY25F.
• We maintain our Buy rating and raise our TP to Rp1,470 as we account additional capacity from the newly-secured PPA projects.

Quick wins to have 1 GW of installed capacity.

PGE aims to increase the installed capacity that it managed directly to 1 GW hence, it will add 340 MW to 672 MW of current installed capacity. PGEO has already secured PPA for a total of 285MW of expansion capacity. In the next 2 years, PGEO aims to add around 175 MW from Hulu Lais Units 1 & 2 (110 MW) and Lumut Balai Unit 2 (55 MW), with the remaining 110 MW from Lumut Balai Ext. A and C1 expected to be completed in FY30F. In regards to inorganic opportunities, the management is looking at the possibility of acquiring some geothermal assets.

Expect production to decline slightly in 2024 due to maintenance

In FY24, PGEO targets a slight decline in production to 4,612 GWh, down 2.6% yoy, due to major maintenance scheduled this year (Exhibit.3). PGEO is scheduled to conduct maintenance on some of its assets, namely Kamojang unit 1 and 4. This maintenance is expected to take around 26-31 days to complete as it is a major turnaround. In addition, the company plans to conduct major maintenance in Lahendong, Ulubelu, Karaha and Lumut Balai. In spite of this maintenance, however, the company still believes that its 2024 production targets can be achieved.

Expect earnings to record double-digit growth in 2025F

With PGEO’s 2024 production target being slightly below ours (prev. 4,735 GWh), we consequently revise our production forecast by 2.6%. In turn, this reduces our 2024F earnings forecast by 4.3% to US$185mn. Nevertheless, for 2025F, we believe PGEO’s production volume could record double-digit growth at 11.1% to 5,126 GWh due to the absence of major maintenance and additional capacity from Lumut Balai Unit 2 that will begin to contribute at end-2024F. As a result, we expect earnings in 2025F to reach US$218 mn or up 17.8% yoy. 

Maintain Buy with a higher TP of Rp1,470

We raise our 2030F capacity forecast from 838 MW to 958 MW, to take into account the additional 285 MW capacity secured. This uplift our DCF-based TP to Rp1,470 (prev. Rp1,090). We maintain our Buy rating on the attractive LT growth outlook. Key risks to our call include delays in the schedule of brine projects and prolonged maintenance.

… Read More 20240118 PGEO