Citigroup: Buy: A Simple Business Strategy JSMR (TP Rp2,003)

Jasa Marga (Persero) (JSMR.JK) Buy: A Simple Business Strategy

 Raising our estimates and TP – We reiterate our Buy/Low Risk (1L) rating on Jasa Marga and raise our TP to Rp2,003/share (from Rp1,330/share), as we raise our earnings estimates. Our TP, which is still based on a two-stage DDM/PE model, equates to 12.9x PE10E, which is undemanding compared to an average of 13.9x for regional peers.

 Defensive, predictable earnings – Our net profit estimates are raised by 47% for this year and 12% for next year; for FY09E, the company has posted a Rp125bn one-time gain from its investment in JORR W1 section. Our new estimates also factor in higher tariffs next year (we see an average increase of 12%) and a 5% rise in traffic volume. The limited availability of alternative roads should mean traffic levels continue to rise, despite a hike in tariffs.

 What’s next? – With its current assets portfolio relatively balanced, cash flow from Jasa Marga’s mature roads will fund/finance the new toll roads. While progress has been slow due to land acquisition, the company is constructing 13.6km in two projects, and will commence operation on one new one (3.6km) this month. No refinancing is needed until 2011, and Rp2.5trn in IPO funds remains unused. 10E debt/equity stands at 0.8x.

 Risks – (1) Change in GoI regulatory framework, i.e, on tariffs, land acquisitions; (2) Completion of ongoing projects; (3) Rising interest rates; and (4) Macro and political conditions.