Will History Repeat Itself?

Upstream ELSA operations demonstrated robust growth in 1H24, driven primarily by exceptional seismic performance, alongside notable contributions from DWO & WLI. Segment revenue soared to IDR 2.6 tn (+37% YoY), while EBITDA surged to IDR 304 bn (+48% YoY). Notably, net profit from the upstream segment exhibited a remarkable increase, soaring to IDR 232 bn (+337% YoY), with net profit margin expanding significantly to 8.9%, from 2.8% in 1H23. It is important to highlight, however, that these impressive bottom-line results were in fact buoyed by ancillary income, specifically, a IDR 69 bn contribution from the Bank Mega case. Adjusting for this factor, core net profit from the upstream segment would stand at IDR 163 bn (+207% YoY). In 1H24, ELSA managed to book 5 projects, and we anticipate additional ones to be scored in the latter half of 2024, particularly in the fourth quarter. While we suspect third quarter results may not reach the heights of those of the second quarter, momentum is expected to pick up again in the fourth quarter.

Interesting Position – but not without Downside Risks

Given its current market valuation, ELSA presents as a relatively undervalued player within the O&G sector (trading at 5.4x 2024F PE). In terms of competitive positioning, ELSA operates within a wide range of the O&G market segment, playing from upstream to distribution. This strategic focus not only differentiates ELSA from its peers but also positions it to capitalize on unique opportunities that others may not be able to access. Looking ahead, we anticipate that the post-election climate could catalyze additional exploration in the O&G sector, potentially as early as 4Q24 or 1Q25. Such a development would likely result in increased operational volumes for ELSA, fortifying its growth trajectory and reinforcing its market position.
Certain risks could however temper ELSA growth prospects.

1. Any slowdown in the expansion of the O&G sector, particularly a reduction in exploration ventures, could significantly impact operational volume and profitability.
2. Regulatory changes, such as modifications to the gross split regulation, could dampen the overall demand for exploration services, posing a direct threat to core business operations.
3. Potential for the Government to extend its control of subsidized BBM distribution could impair fuel consumption, directly affecting ELSA's distribution and logistics segment.

ELSA - Opportunity Knocks Yet Again

ELSA - Opportunity Knocks Yet Again

Elgin Gavriel Liman

PT Elnusa Tbk

09 October 2024 - 07.00am

ELSA - Opportunity Knocks Yet Again

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