Outstanding 1H10 results
Jasa Marga has booked an excellent set of 1H10 results, beating our forecasts, on lower-than-expected opex, effective tax and net interest expenses. The lower-than-expected opex is attributable to lower overtime and higher efficiency, retirement, and the delayed human resource program. As such, we still expect mild increases in wages and salaries in 3Q and 4Q. As for the lower net interest expense, this was due to a higher cash balance which generated higher interest income. Net gearing, meanwhile, remains very low at only 13.6% as of June 2010. For tax, our assumption of 28% turned out to be too high as the effective tax was only 20% in 1H10. The low effective tax is a result of the significantly higher income which is subject to final tax.
Looking to issue bonds
Jasa Marga’s Rp650bn bonds series X – which carries an interest rate of 16.15% - will mature on 4 December 2010. At the same time, Jasa Marga also has outstanding bank loans of around Rp1.6tr as of June 2010. Hence, over the next 12 months, Jasa Marga’s cash outflow for maturing debts will be about Rp2.3tr. Thus in order to have sufficient cash to repay the maturing debt, Jasa Marga plans to issue around Rp1.5tr of new bonds with a maturity of 10 years – bearing an interest rate yet to be decided. Our guess is that the coupon rate should be around 10%. It seems that the company may be looking to issue the bonds rather early, taking advantage of its strong balance sheet and the low interest rates environment – a sensible ploy given the likelihood of a higher inflation rate in the coming months
Earnings revised up
We upgrade our earnings estimates by 18.9% for EPS FY10 and by 22.0% for EPS FY11. The main changes are lower effective tax of 20% for the period of FY10-12 and 25% for the following years. We have also adjusted our operating costs and net interest expense estimates to take into account the 1H10 financial result. However, we have not changed our revenues estimate as the 1H10 figure is within expectations.
TP upped to Rp3,100, BUY
Jasa Marga’s management seeks to improve the EBITDA margin through efficiency gains - especially from its human resources. Compared to the other toll road operators, Jasa Marga is overstaffed. Hence, by growing its business while keeping to a policy of zero growth in employee numbers, Jasa Marga’s management hopes to reduce the average number of staff per km of road. All in all, we remain upbeat on the company given its exposure to domestic economic activities – which are picking up their growth pace. With our earnings revision and basing our DCF valuation on FY11, our new Target Price for the shares is Rp3,100. This translates into PER FY11-12 of 14.6-11.2x and EV/EBITDA FY11-12 of 9.7-7.5x. BUY maintained.
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