BNP Paribas Jasa Marga: Key Takeaways of Analyst Meeting

Price 1,800, TP 2,300, Mkt cap $1,358m, Avg t/o $1.7m

2010E: Rec EPS 143, P/E 12.6, P/B 1.5, ROE 12.8, Yld 2.7

2011E: Rec EPS 145, P/E 12.4, P/B 1.4, ROE 12.0, Yld 2.8

Macro and Other News

During the analyst luncheon Jasa Marga explained the proposed regulation that will have positive impact on the development of infrastructure projects.

§ The government plans to speed up the development of infrastructure programmes in the future to support the expected higher economic growth, especially in Java island where most of the toll roads and power plants are to be built.

§ Currently the government has provided land capping and revolving funds for land acquisition for toll road projects. Land capping provides investors maximum cost overrun of 10% on top of the agreed land acquisition cost for a project while additional cost will be born by the government. Revolving funds are the funds provided by the government to acquire land (with limitation for each project) and payable to the government (with small interest) when all 100% of the land is acquired.

§ Land acquisition remains the major hurdle for most projects as land price needs to be negotiated with land owner based on the property tax value. Although there is a regulation that revokes the land rights on projects for public interests, the revocation can only take place when there is transaction and hand-over of the land, for which no time limit is set. This thus takes ages for land acquisition alone given the lengthy negotiation process.

§ The government will propose to the parliament to improve the ruling, which will regulate:
a. Land price for the projects to be determined by appointed independent appraiser based on fair market price with no room for negotiation. If the land owners do not agree, they may choose to submit the objection to the court within 14 days.
b. The revocation of land rights for the projects is either upon hand-over/transaction or based on court verdict within a fixed time limit of 30 days after the submission of the case.
c. If the court decides that the land price should be higher than the appraised price, investors will then have to pay higher price (with land capping remains valid).
d. Compensation of the land for public interests can either be in cash (mostly) or relocation into other area.

The proposed revised regulation, expected to be passed by the parliament in 2H10, is positive for the future infrastructure projects with more certainty for the project construction. Once 75% of the land is acquired (this maybe reduced to 51%) the project can start while the funds for the remaining unpaid land are placed under the court’s custody. There is also a plan for the government to acquire the land for infrastructure projects first while investors will only have to concentrate on the construction.