● After revisiting our earnings for Jasa Marga, we have upgraded our net profit by 22% this year mainly due to: 1) stronger-thanexpected traffic volume and 2) higher tariff increases. In our view, these are the two key defensive qualities for Jasa Marga:
● Traffic volume in 2009 grew 4.2%, which is the highest level since 2006 despite the 2008-09 credit crunch, and we expect volume to grow at a similar rate this year.
● Tariff rate was increased by around 15% in 4Q09, showing the government’s credibility to follow the existing law. We expect this to have full impact this year. We expect EBITDA to grow by 27%.
● Earnings outlook, however, was mitigated by higher net interest expenses due to more investments needed for new toll-roads.
● However, we see Jasa Marga as an attractive defensive play with strong operational leverage, strong defensive qualities and relatively attractive valuations. Our new target price (based on 10% discount to SOTP) implies 24% upside and 16.4x FY10E PER. We maintain our OUTPERFORM rating on the stock.
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