Bahana Securities Jasa Marga Sector: Infrastructure (Overweight)

Dissipating roadblocks

Proposed land acquisition law to determine…
In 2010’s toll road development, roadblock removals will come from the establishment of the scheduled land acquisition law, enabling the government to revoke individuals’ rights of land ownerships for public use. The new law, which would be a breakthrough, will provide details on the execution process such as compensation payment, process on the revocation of land rights, and period of land acquisition. During land clearance, land price will be determined by an independent appraiser at market value, which is nonnegotiable. If owners agree with the proposed price, land ownerships will be revoked and transferred to the government. Conversely, land owners who object to the offered price may settle in court with a maximum period of 44 days versus the “No limit” period at present.

… the success of infrastructure projects and re-rate listed companies
The new proposed law would undoubtedly become a powerful tool and sole key factor for the government to expedite the development of toll roads and other infrastructure related projects in Indonesia. It is worth noting that the parliament has positively viewed this regulation plan during public hearing earlier this year, indicating that approval is just around the corner. Thus, completion of the draft before the end of year would be highly critical, as continuity on infrastructure development would hinge on the realization of this law. We think that the establishment of this law will be a strong catalyst for re-rating on infrastructure play like Jasa Marga (JSMR).

1Q10 earnings: Up 18% q-q on cost efficiencies
Despite 1Q10 negative revenue growth of 4.8% q-q to IDR998b on volume seasonality (-3.3% q-q), JSMR managed to register earnings of IDR303b, up 17.8% q-q or 54.2% y-y, helped by 19% average tariff adjustment on twelve routes and lower operating expenses. As operating profit jumped 39% y-y to IDR511b, margin expanded to 50.5% from 44.2% in 4Q09. Note that operating costs would escalate in the subsequent quarters given that road maintenance requirement for the approval of 11% tariff adjustment on two routes (Jakarta – Cikampek & Prof. Sedyatmo) must be completed before the end of June 2010. Nevertheless, with 1Q10 net profit having accounted for
28% and 30% of our and consensus estimates respectively, JSMR is on track to achieve our 2010 net profit forecast of IDR1.1t, up 9.1% y-y.

Real estate project to help secure future growth; BUY on IDR2,500 TP
Going forward, we believe that JSMR will continue its commitment to secure long-term growth through road expansions. Additionally, the management is currently undergoing discussion to develop real estate within the vicinity of two routes: Jakarta–Cikampek and Surabaya–Mojokerto. This would help JSMR to ensure traffic flows and mitigate the risk of slower payback period on its new toll roads. Thus, with long-term outlook remaining promising, we retain our DCF-based (WACC: 14%) target price of IDR2,500. BUY.