April 21, 2025

Turning Tariffs into Tailwinds

Market Commentary

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The U.S. government has just imposed a retaliatory tariff of up to 47% on products from Indonesia, heating up trade tensions.

But instead of responding emotionally, the Indonesian government has taken a rather unique approach, they’re planning to purchase LPG from the U.S.

Initially reported as LNG, it was later clarified to be LPG only.

Apparently, the plan to buy gas from the U.S. isn’t just about maintaining good relations, it’s also a smart financial move for PGAS.

The company plans to import 20 cargoes of LNG this year from the U.S., which will account for around 20% of its total gas supply.

This step is crucial to offset declining domestic gas production, particularly in densely populated areas like West Java, which is currently facing a supply shortage.

If everything goes according to plan and gas sales volume rises by 10% above initial projections, the impact on PGAS’s financial performance could be quite significant.

The company’s net profit could increase by around 5%, while ROIC and ROE would also improve by approximately 142 and 50 bps, respectively.

What makes PGAS even more attractive isn’t just the volume growth outlook, it’s also the extremely cheap valuation.

Just imagine, with a market cap of around USD 1.8 bn and annual free cash flow of approximately USD 500 mn, the stock is trading at an EV/FCF of only 3.6x, far below the average for the energy utilities sector.

What does that mean? You’re paying a bargain price for a business that generates strong cash flows.

Still not enough? PGAS is also generous when it comes to dividends.

Assuming a 70% payout ratio, investors can enjoy a dividend yield of around 10%, a significant passive return, especially in a market filled with uncertainty.

And since most of PGAS’s revenue is denominated in USD, the stock also serves as a natural hedge against rupiah depreciation.

Interestingly, the current 10% dividend yield is the highest in the company’s history, making the current share price a highly attractive entry point for investors looking to own PGAS stock at a steep discount to its historical valuation.

Therefore, with a combination of improving volume outlook, discounted valuation, strong cash flow, and natural protection against currency volatility, we see no reason to pass on this opportunity.

We reiterate our BUY recommendation for PGAS and raise our target price to a higher level of IDR 2,180.

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