by Batavia Prosperindo Securities
• Strong Result
In 2010, PT. Jasa Marga Tbk (JSMR)’s net income exceeded Rp. 1 trillion for the first time in their history, growing 20.23% compared to the 2009 achievement. Up to the 1Q11, JSMR’s net income had already reached Rp. 371 billions, increasing 27.49% from the same period in 2009. It gives indication for a solid result in full year 2011, as empirically 1Q11 traffic were the lowest among yearly traffic cycle.
• Acquisition Projects
New projects of JSMR are estimated to be able to add 35% of its current road length concession, up to 731 km in the next 3-4 years. This new project should make JSMR retain its position as the market leader in the toll road industry, operating more than 70% of total toll road concession in Indonesia.
From the two projects expected to be completed in 2011, the Semarang – Ungaran has started it’s trial this July 2011, while the other, Surabaya – Mojokerto toll road is expected to start operating in 3Q11. One of the newest acquisition project is Gempol – Pandaan Toll Road. Gempol – Pandaan has a length around 13.61 Km, with total investment cost Rp. 1.6 trillion. The project are estimated to accommodate additional 23,200 vehicles/day in 2015 with an IRR of 17.15%.
Government intention to push forward economy by building more infrastructure could also be a good catalyst to JSMR. New policy in the land clearing and acquisition regulation is expected to be able to accelerate the process for land procurement needed to build new projects. Currently the company has made use of the funding schemes that are provided by the Government (revolving fund and land capping) to mitigate funding risk particularly in the land acquisition process.
• Lower cost of debt, but expecting higher interest expense
In October 2010, JSMR refinanced it’s debt by issuing obligation, causing its weighted cost of debt to decline from 11.97% in FY09 to 10.42% in FY10. But this current weighted cost of debt is expected to change in the near future as the company is planning to finance 70% of it’s Rp 25 trillion investment plan by issuing additional debt. New debt will cause JSMR have higher interest expenses, while the new toll road operation has not yet achieve its full utilization. This situation will generate temporary negative impact to the income growth of JSMR in the next two years.
• Remain a BUY with Revised TP to Rp4,625
Strong results in 2010 and 1Q11, continuous growth in the toll road acquisition, support from the Government and increasing traffic volume warranted a Buy call for JSMR. We forecasted that once JSMR’s new toll roads are fully utilized, its net income will increase significantly. By using the DCF model, we obtain Rp. 4,625 as a fair value for JSMR, up Rp. 100 from our previous target of Rp. 4,525. The new TP represented 27.59% upside potential from 07/05/11 closing.