Ratification of new land acquisition law in the pipeline
Land acquisition remains a key issue for toll road construction in Indonesia. Currently, land acquisition is based on Law No 20/1961 and two presidential decrees (No 36/2005 and No 65/2006). However, in order to provide an even stronger legal basis for land acquisition, the House of Representatives (parliament) is expected to discuss a new bill on land acquisition before passing it into law. Technically this should make it easier to revoke land owners’ land rights - although implementation is another matter entirely.
New toll road projects bode well for the future
Jasa Marga has five toll road projects in progress: the Bogor Ring Road (BORR) section 2, Semarang-Solo section 1, Gempol Pasuruan, JORR W2 North, and Surabaya Mojokerto. The construction of Semarang-Solo section 1 has already started but the other four are still in the land acquisition stage. In our view, these toll roads have the potential to generate good revenues since they are close to the main cities - meaning sufficient traffic. The concerns center on land acquisition – a time consuming process that makes the completion time of a project unpredictable. A stronger land acquisition law is key to speedier toll road development.
Pretty good 2009 results
Jasa Marga’s 2009 results are fairly good. Revenues increased 10% yoy to Rp3.7tr with EBITDA up 7% yoy to Rp1.8tr. Helping to boost the company’s performance was the 4.3% yoy higher traffic volume of 2.5mn vehicles per day. The company also booked Rp125bn in gains from asset conversion to investments in Jakarta Lingkar Barat Satu. All in all, the balance sheet remains healthy with net gearing of a moderate 48% as of December 2009.
Target Price trimmed to Rp2,300 on project delays
We slightly adjust our earnings forecast to take into account 1) the FY09 results and 2) some delays in the new toll road projects due to the protracted land acquisition process. However, our earnings changes are not significant (expect for net profits as the interest expenses shift to later years because of the project delays). Our DCF valuation gives rise to a lower TP of Rp2,300 as some projects were shifted back without any extension in the concessionary period.
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