Credit Suisse Jasa Marga - Robust 1H10 results (on lower costs) re-affirms our positive view as one of the top defensive plays

● Jasa’s 1H10 results saw a 64% YoY jump on strong top-line growth and improving operating efficiency, and beat ours and consensus’ expectations by 8-12%.

● While the strong top line was expected, we believe that the lowerthan-expected operating expenses was partly attributable to: 1) higher leverage on tariff structure and, more importantly, 2) the usage of electronic tolling system which seems to have improved efficiency on costs and possible traffic leakage.

● We, therefore, adjust our expense assumptions and upgrade our earnings by 7-9%, putting our forecasts about 15% above consensus’. We have also increased our DCF-based target price by 8% to Rp2,800 (from Rp2,600), implying 29% potential upside
from current levels.

● We continue to maintain our view that Jasa Marga is our top pick in the defensive and inflation-hedge play in Indonesia. Its strong earnings momentum, driven by tariff increases (recently again in July on 25% of its sections), is likely to be the key catalyst.