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Fundamental View
AS OF 19 Sep 2022Perusahaan Listrik Negara (PLN) enjoys extremely strong ties with the Government of Indonesia (GoI) and is assured of extraordinary support in times of distress, given its policy role.
PLN’s revenues and EBITDA remained during COVID as well, as demand for power remained sturdy in the country.
However, PLN incurs significant capex spending requirements as the GoI has entrusted the company with the responsibility of fully electrifying the country.
As a result, the company has undertaken a greater amount of debt, pressurizing its already elevated leverage levels.
Business Description
AS OF 19 Sep 2022- PLN is involved in the entire electricity value-chain, from power generation, to transmission, distribution and retail.
- It alone accounts for 76% (~47 GW) of Indonesia's generation capacity (of which 8 GW is renewable capacity), while IPPs provide the remainder.
- The company controls and operates the entire transmission and distribution network in the country. It is the sole buyer of electricity produced by IPPs, through power purchase agreements (PPAs).
- It sells electricity to well-diversified off-takers – 41% to households, 25% to industrial customers, 21% to businesses and 12% to others.
- Since 2015, the GoI has gradually implemented monthly tariff adjustments for 13 customer groups, so that rates charged to customers are better matched with production costs.
- However, under the Public Service Obligation (PSO), the company will continue to sell electricity at subsidized rates of 50% to 450-volt amperes (VA) power households and 25% to 900 VA power households. The GoI subsequently reimburses the company for the difference between the subsidized tariff rate and production cost, typically within 2-3 months.
Risk & Catalysts
AS OF 19 Sep 2022The company provides subsidized electricity to certain households for which it subsequently receives reimbursements from the GoI; though these payments tend to get delayed during the general elections period or other major events, such as the ongoing COVID-19 pandemic.
In order to increase the country’s electrification ratio to 97%, the company had been mandated by the GoI to develop large electricity capacities through the Fast Track II and 35,000 MW Programs. Implementation of such complex programs has required significant capital expenditure, which has led PLN’s FCF to fall deep into the red in recent years and created a funding gap.
The success of the above programs is also contingent on the company’s ability to source coal cheaply, select quality contractors, acquire land rights and receive adequate subsidy reimbursements from the GoI.
Key Metrics
AS OF 19 Sep 2022| IDR bn | LTM 1H22 | FY21 | FY20 | FY19 | FY18 |
|---|---|---|---|---|---|
| Debt to Book Cap | 29.1% | 29.7% | 32.2% | 32.5% | 29.1% |
| Net Debt to Book Cap | 27.1% | 26.9% | 28.2% | 29.1% | 26.5% |
| Debt/Total Equity | 41.1% | 42.2% | 47.4% | 48.1% | 41.1% |
| Debt/Total Assets | 25.1% | 25.7% | 28.1% | 28.2% | 25.5% |
| Gross Leverage | 4.3x | 5.0x | 5.5x | 5.6x | 5.7x |
| Net Leverage | 4.0x | 4.5x | 4.8x | 5.0x | 5.2x |
| Interest Coverage | 9.7x | 3.3x | 2.5x | 2.6x | 2.3x |
| EBITDA Margin | 31.5% | 28.4% | 29.0% | 27.8% | 24.5% |
CreditSights View
AS OF 19 Sep 2022PLN’s top line and EBITDA remained robust in 1H22, as demand for power remained sturdy. It enjoys extremely strong ties with the GoI and is assured of extraordinary support in times of distress, given its policy role and proven government support. However, the GoI has entrusted the company with the responsibility of fully electrifying the country, resulting in significant capex spending requirements for the company before COVID-19 hit, pressurizing its already elevated leverage levels. Despite PLN’s poor standalone credit profile, the GoI’s unequivocal support provides a cushion to fall back on. We think PLN will remain largely insulated from the elevated fuel costs since it procures coal at capped prices as mandated by the GoI. We maintain our M/P recommendation.
Recommendation Reviewed: December 09, 2022
Recommendation Changed: October 17, 2019
Who We Recommend
Siam Commercial Bank
Bangkok Bank
Kasikornbank
