Mandiri Sekuritas JSMR: Regulated growth

In January 2010, the government implemented the Presidential Regulation (Pepres) No. 13/2010, which amends the Pepres No. 67/2005, concerning the government-private sector partnership in infrastructure development. Under the new regulation, land procurement will be the government’s responsibility and ownership in the stalled toll road projects can be transferred to new partners. We see potential growth in toll road supported by the government’s int! ervention We upgrade our TP on toll-road operator PT Jasa Marga (JSMR) to Rp2,400. Maintain Buy.

Strong FY09 results … On 28 Sep09, JSMR increased the tariffs of 11 of its 13 toll roads by between 11% and 33 %. Consequently, revenue in 4Q09 went up by 17%qoq, driving the FY09 revenue up 10% yoy to Rp3.7tn and net profit by 40% yoy to Rp998bn. The company booked one-off extraordinary gain of Rp124bn; consequently, net margin went up to 27% from 21% in the previous year.

New toll road operation and traffic … BORR section I (3.8Km), has officially begun operation in 23 Nov 09, and since then, the traffic has been increasing. Average daily traffic reached 18.000 of vehicles during Jan-Feb10. Traffic volume in FY09 reached 916.0mn of vehicles (+4%yoy). The highest traffic growth happened in the Padalarang-Cileunyi section which grew by 23%yoy. Meanwhile, the highest traffic volume was recorded in the JIRR (Jakarta Inner Ring Road) of around 180.7mn of vehicles in 2009.

Double-digit revenue growth … the company targets 3%yoy growth in traffic volume in 2010, to achieve 16%yoy increase in revenue to Rp4.3tn. The state-owned company expects to achieve such targets as it plans to open 2 new toll roads: (1) the Semarang – Ungaran (11.3Km) by 3Q10 and (2) the Waru – Sepanjang (2.3Km; part of Surabaya – Mojokerto) by 2Q10. Meanwhile, it will increase the tariffs for two toll roads (Jakarta-Cikampek and Prof.Dr.Ir.Sedya< /st1:PersonName>tmo) with expected incremental tariff of 10%, likely by June 2010.

Maintain buy ... We adjusted our valuation. Based on DCF valuation (WACC of 11.7%), we upgraded our target price to Rp2400 from Rp2100. Our new target price puts the company at PE’10F of 15.4x. Currently, it trades at PE’10-11F of 12.2x and 11.0x, respectively. Maintain buy.