Pertamina Geothermal Energy (PGEO IJ)

Delayed Commencement of Lumut Balai 2; Downgrade rating to Hold

 

  • Lumut Balai unit 2’s 55MW commencement will be delayed to Jul25.
  • 2025-2034 RUPTL was announced with a capacity addition of 69.5GW, with a higher geothermal capacity of 5.2GW (vs. 3.4GW in 2021 RUPTL).
  • Downgrading to a HOLD rating with a TP of Rp1,250 due to later than expected Lumut Balai COD and higher interest expense.

 

Realizing capacity addition

Lumut Balai unit 2’s 55MW commencement will be delayed to Jul25, which marks its first capacity addition since its IPO in 2023. Moving forward, PGEO will focus on its co-generation projects with PLN of 230MW, starting with phase 1 of 45MW (Ulubelu 30MW and Lahendong 15MW). Meanwhile, its project in Kenya is still ongoing, with an expected FID in 3Q25 for drilling to start in 4Q25. However, its capex allocation is still minimal at US$13mn (vs. 2025 capex of US$319mn).

 

Growth prospects intact

PGEO’s cost of funds is at a low rate of 3.75% and has a DER of 0.37x, which is well below the limit set by Pertamina of 1.0x. Thus, it has the capability to lever up another US$1.3bn to support its capacity expansion that is divided into 3 types, which are quick win projects (395MW), extension (505MW), and green field (230MW). As the 2025-2034 RUPTL has been announced, PGEO and PLN IP should be able to proceed with its co-generation projects as the MEMR approved of 5.2GW of new capacity (vs. 3.4GW in 2021-2030 RUPTL).

 

Announcement of RUPTL 2025-2034

MEMR announced a capacity addition of 69.5GW (vs. 40.6GW in RUPTL 2021) in the latest electricity supply business plan (RUPTL 2025) with a higher emphasis on renewables of 42.6GW or 61% (vs. 20.9GW or 52%). The 10-year plan will be divided into 2x5 years, with the 1st half focusing more on fossil fuel (45%) than renewables (44%) while the 2nd half focuses more on renewables (73%) rather than fossil fuel (10%). The ministry expects that the capacity addition will cost Rp2,134tr, which is mostly allocated for IPPs at 73% or Rp1,566tr.

 

Downgrading to a Hold rating with a TP of Rp1,250

Following a 22% share price rally WoW, we downgraded our rating to HOLD with a TP of Rp1,250 based on a DCF valuation method on all projects. We believe the recent rally was driven by rumors of divestment, though it was not confirmed by the company. We lowered our FY25-26F revenue by -3.6%/-0.5% as we factor in lower Lumut Balai’s capacity factor from the slight delay in COD, as well as increasing interest exp. from Lumut Balai that was previously capitalized, which resulted in a lower FY25-26 NP of -12.0%/-3.1% to US$157mn/177mn. Our TP implies an EV/EBITDA of 9.3x/8.6, which is a discount compared to its peers at 12.7x/11.3x. PGEO has been discounted to its peers due to the lack of growth. Upside risk to our call: stronger ASP growth and early debt repayments; downside risks to our call are lower capacity factor and delays in the project timeline.

 

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