More trading upside, PO raised to Rp1,800 Although the stock has appreciated by 84% over the past three months and
trades at a 9% premium to our base case NAV, we still see trading upside on the stock based on EV-to-reserves comparison and bull case NAV. We reiterate Buy with a 33% higher PO of Rp1,800, or 25% upside. Higher oil price assumption lifted EPS Merrill Lynch's energy team has raised WTI oil price forecast for 2008 from US$73/bbl to US$82/bbl, for 2009 and long-term from US$60 to US$70. As such, we increased 2008 EPS estimates by 14% and 2009's by 15%. Pricing of uncontracted gas - an important swing factor Between now and 2012, we estimate ENRG will produce 642 bcf of natural gas (gross), 159 bcf of which is un-contracted. Our NAV is highly sensitive to the pricing of this gas. We believe the industry regulator will soon issue a gas price formula that would allow aggressive price hikes - a positive for both upstream and pipe operators. Our NAV ranges from Rp1,321 to Rp1,696 based on sensitivity analysis. Looks attractive based on EV-to-reserves comparison EV-to- reserves (2P) comparison highlights ENRG as one of the value stocks, at US$9.9/boe. ENRG may offer strong inorganic growth in reserves, given Indonesia's focus on ramping up oil exploration and ENRG's political clout. In past transactions, ENRG purchased THP at an implied valuation of US$3.4/boe, and sold part of Kangean at as much as US$4.7/boe, by our calculation.
