No one has expected this state toll-road company to become more efficient, in the year when the company hikes its toll tariff by 11%, on average. But they did. Overall opex came in flat YoY in 1H10, and flat sequentially in 2Q10. That was the source of the positive surprise; JPMorgan analyst Liliana Bambang is upping her FY10-11 EPS estimate by 11-14%, consensus may need to go up by 15-20%. PxT raised by 11% from Rp2600 to Rp2900.
Where is the efficiency gain coming from? The company started re-organizing its employment structure in 2009, streamlining the sub-divisions and increasing efficiency in outsourcing costs. They started implementing e-toll card in early 2009 as well. Year-on-year, number of employees in branch offices is already declining, per Dec 2009 (down by 3% yoy to 4726). E-toll transaction now accounts for 3-5% of total transactions, and the trend is picking-up.
Unique to JSMR (compared to other SOEs) is the fact that 20% of its employee base is outsourced. As such, any efficiency gain that the company achieve can flow straight to the bottom-line, without being accompanied by big one-off early retirement costs. Looking forward, I see room for JSMR to continue gaining efficiency, while its inflation-linked tariff is a good inflation hedge for the robust Indonesian economy. At the same time, cost of borrowing for JSMR should continue to decline, driving both EPS and NPV higher still. One of my top picks for the market. BUY.
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