Perusahaan Gas Negara: Minimal downside from temporary LNG price cap; upgrade to Buy on valuation

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Perusahaan Gas Negara: Minimal downside from temporary LNG price cap; upgrade to Buy on valuation

6E

12/27E 238 237 -0 217

We believe gas prices will be lowered by adjusting the economics at the upstream and 12/28E 252 252 -0 217

processing levels, suggesting a potentially muted impact on PGAS's margins. That is in

line with our estimate of ~90% of the supply chain's profit margins being booked at the Timothy Handerson

upstream plus LNG processing stages, with only ~10% downstream (eg, distribution/ Analyst

timothy.handerson@ubs.comtransmission) (Figure 2PGAS'sestimatedLNGsuplychainprofitability(%oftotal)). Our base case conservatively assumes 10-20% of the impact to

+62-21-2554 5000

be absorbed by PGAS; thus, we lower our 2026E EPS 4% to account for a slightly lower

gas distribution spread as a result of the price cap (details in Figure 3SimulationofpricecapimpactonPGAS's2026ENPAT). Higher-than-

expected volume as a result of lower prices could further mitigate EPS downside risk.

Valuation: Lower PT but upgrade to Buy on attractive valuation

We lower our DDM-based PT from Rp2,180 to Rp1,960 driven by a lower dividend

payout ratio (DPR) assumption to 80%, more in line with the actual DPR of 80%

(2026 UBSe: 90%), reflecting a more conservative capital allocation strategy by PGAS's

new management, especially in the challenging macro backdrop. However, we upgrade

to Buy on valuation, as the share price has corrected 40% since its peak in March 2026.

Adjusting for potential EPS downside, PGAS is trading at undemanding ~5.7-6.5x PE

and a ~12-14% dividend yield in 2026-27E, assuming an 80% DPR. Key downside risks:

1) further adverse regulatory changes; 2) weak local industry demand; and 3) higher-

than-expected oil prices leading to high LNG purchasing cost.