Mandiri Sekuritas Estimates PGEO's Share Price Will Reach IDR 1,200

Share illustration (Photo: Doc. Antara)

JAKARTA - Mandiri Sekuritas (Mansek) in the latest research report gave a purchase rating (buy) to PT Pertamina Geothermal Energy Tbk (PGEO) with a target price of IDR 1,200 per share.

This figure is 42 percent higher than the closing price on Tuesday, June 20, where PGEO shares are trading at IDR 845 per share.

Furthermore, the projection is also 37 percent higher than the company's initial public offering price (IPO) which was offered to the public earlier this year and almost 30 percent above the highest closing price level recorded by the company on the Indonesia Stock Exchange.

Mansek analysts Henry Tedja CFA and Ariyanto Kurniawan noted that there are at least three main things that investors should pay attention to, which can be a major boost to strengthening the performance of the shares of the renewable clean energy producer company.

The first is related to the aggressive business expansion plan which is expected to improve the company's financial performance, both in terms of the top line and bottom line.

"PGEO in the next five years is expected to be able to increase the installed capacity of 600 MW so that the total becomes 2.447 MW," wrote a report from Mansek analyst quoted on Thursday, June 22.

According to Mansek analysts, it is an easy target, given the abundance of company resources in 12 Working Areas (WK).

Furthermore, the profitable long-term contract (19 to 30 years) with PLN will support operations and provide strong and stable cash flow for the company and can eventually be the main driver of PGEO's soaring financial performance.

"The business model is able to provide free cash flow for PGEO of US$76 million or equivalent to Rp1.14 trillion to US$207 million or equivalent to Rp3.11 trillion throughout 2019-2022," he explained.

In addition, PLN as a buyer in the last three years has always paid bills without delaying payments for too long, thus making the company's cash flow even stronger.

Finally, Mansek analysts also underlined the Government's commitment through PLN in advancing new and renewable energy (EBT) is an important additional boost for the company's business, which is expected to grow with stable growth.

PLN itself in the energy mix has stated its commitment to increasing the use of electricity from EBT sources. Geothermal is expected to play an important role with an increase in capacity of up to 3.3 GW in the next 10 years.

Mansek predicts EBITDA PGEO can grow 6.1 percent (CAGR) throughout 2022 to 2025. The company's net profit is also expected to grow stable in the same period.

The price target of IDR 1,200/share is expected to provide EV/EBITDA implications in the range of 11.2x, which is in accordance with the assessment of merger transactions and global acquisitions that provide a valuation of 6.9-13.4x EV/EBITDA.

In addition, this figure is also in line with global independent generating companies (IPP) which have a valuation of 8.5-22.5 times EV/EBITDA.

A number of other important things that Mansek noted in his report in addition to the important role of Geothermal in the future include:

PGEO's position as the world's largest geothermal IPP with a thick margin.

The ambition to increase the capacity of the power plant widens its gap with competitors as the main leader in the geothermal sector.

PGEO's business and operations are very suitable for ESG proxies, both from an environmental, social and governance perspective.

The potential is greater in the future, especially regarding the carbon exchange, which trials will be conducted this year and can run fully in 2025.