Perusahaan Gas Negara (PGAS IJ)

Improving Earnings Outlook, Manageable LNG Price Reform Impact; Reinitiate Coverage with Buy

• PGAS operational performance improved in 2Q26, with gas trading vol. recovering to c.865 BBTUD in 2Q26 vs. 777 BBTUD in 1Q26.
• We believe LNG price reform poses manageable downside risk; final burden-sharing terms remain the key earnings catalyst.
• Reinitiate coverage with Buy rating and TP of Rp1,900; attractive valuation and improving operations outweigh near-term risk.

Improving Operational Performance; Earnings on the Recovery Path

PGAS' operations rebounded in 2Q26 after a softer 1Q26, with gas trading volume recovering to 865 BBTUD from 777 BBTUD. We forecast net profit to recover to US$247mn in FY26F (+15% y-y) and US$251mn in FY27F (+2% y-y), driven by improving LNG regasification despite a narrower gas spread. We see three key earnings drivers: 1) higher LNG regasification lifting SSWJ transmission throughput to 1,625–1,641 mmscfd in FY26–27F, 2) industrial customer additions and Jargas expansion supporting distribution volume growth to 913 mmscfd by FY27F, and 3) incremental fee-based contributions from the Cikamplung oil pipeline.

LNG Price Reform: Manageable Earnings Impact.

The government's proposal to cut industrial LNG prices to US$13/MMBtu has raised concerns over PGAS' earnings outlook, but management clarified this reflects a cost redistribution across the LNG value chain rather than a price cut absorbed solely by PGAS, while maintaining its targeted trading margin of US$1.65-1.85/MMBtu. Under our price-cap scenario, assuming PGAS absorbs 30% of the burden for six months in FY26F, we estimate gross profit would decline by US$17.6mn versus our no-price-cap scenario, equivalent to 3.9% of FY26F net profit and implying around 3.0% downside to our target price. (See Exh 7-9). A full 12 months, full-burden scenario could cut net income by around 26%, making negotiation outcomes the key swing factor.

Reinitiate coverage with Buy rating and TP Rp1,900

We reinitiate coverage with Buy rating and TP of Rp1,900, based on 2.2x FY26F EV/EBITDA (-1SD to 5-year mean). We believe the market has largely priced in the proposed LNG price reform, with PGAS currently trading at just 1.8x FY26F EV/EBITDA, around 18% below its long-term mean. Our FY26F forecast does not incorporate any burden-sharing assumptions, as the implementation mechanism remains subject to further government clarification and issuance of a follow-up Kepmen. Our constructive view is supported by recovering gas volumes, improving LNG regasification utilization, and continued downstream infrastructure expansion, while key risks include a more burdensome sharing mechanism, weaker industrial gas demand, lower transmission throughput and project execution delays.

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