Citigroup Summary Takeaways from Citi Indonesia Investor Conference – Day 2, Jasa Marga (Persero)(JSMR.JK;Rp2,625;1L)

 Takeaways from Jakarta — Jasa Marga presented at Citi's Indonesia Investor Conference on Aug.4-5.Below are key takeaways.

 Upcoming expansion projects — In the next 3-4 years,Jasa Marga aims to add seven toll roads (Bogor ring road section 2 and 3,Gempol-Pasuruan, Semarang-Solo,Cengkareng-Kunciran,Kunciran-Serpong,Surabaya- Mojokerto,JORR W2 North).The addition will boost their current 531km to 718km of toll roads under management.JSMR has a policy of only constructing toll roads if they would have the land capping and land revolving fund facilities.

 Land revolving fund — The Government of Indonesia (GoI)will provide a revolving fund to acquire land in advance.Land cost and availability of land is secured because investor will only have to repay land cost only after land is fully acquired.
 Land capping — GoI guarantees maximum land price to be compensated by the investor.
 Minimal impact of car sales declines,but beneficiary of car sales growth — Based on Jasa Marga's historical performance,fluctuating car sales growth in Indonesia has a minimal impact on its traffic volume growth.The economic crisis in 1998 and fuel price hikes in 2006 resulted in substantial declines in car sales 40-85%).Nevertheless,traffic volumes only declined by 4-7%.On the flip side,higher car sales did and are expected to contribute to higher traffic volumes.

 Interconnected toll roads enhance value — Mature toll roads when interconnected to younger toll roads can still grow.An example would be when the Jakarta-Cikampek toll road (began operation since 1988)was connected to JORR with the operation of Cikunir Junction in 2007.The former's traffic volume increased from 110m vehicles in 2007 to 125m vehicles in 2009.

 E-toll card — In 2009,two of Jasa Marga's toll roads already made use of e-toll cards.By the end of this year,it will start implementing the usage of e-toll cards on all its remaining toll roads and aims to complete this by 2011. This is in line with their plans to increase current 5%to 40%of its total transactions to be via e-toll cards within the next 4-5 years.The usage of e-toll cards will speed up transaction processing time from 8 seconds to 4-6 seconds.

 Ongoing cost efficiency initiatives — 1)To restructure its capital structure to obtain the lowest possible cost by debt re-profiling program (Weighted average cost of debt have declined from 13.62%to 11.97%).2)Zero growth in the number of employees.3)To transform the working and job system from human based to technology-based through outsourcing strategy as a viaduct.

 Bond issuance — JSMR plans to issue a Rp1.5trn 10-year bond in Sept 2010.This is to refinance its maturing series O bond.Bond yield is expected to be at 10%or lower.

 Diversifying into property business — Jasa Marga is mulling a venture into the property business via a JV with a developer.But this is still within the early stages.