by Kresna Sec : JSMR
We maintain our BUY recommendation with TP of Rp4,300. The Government of Indonesia has officially announced tariff adjustments on 11 of JSMR's toll roads, set to take place on 7 Oct11, with an average of 10.8%, in line with our projection. Those toll roads contribute around 71.4% of JSMR's revenue in our FY11E. New revenue streams from the operation of 2 new toll roads, more acquisition plans in the future and the defensive nature of business amid concerns about global economic slowdown are catalysts that also add weight to our positive stance on JSMR.
New Tariffs Effective on 7 Oct11. The Government of Indonesia has officially announced new tariff rates on 11 of JSMR's toll roads, which effectively will be imposed on 7 Oct11. Those new tariffs are 5.9%-25% higher than current tariffs, with the highest increase taking place at Pondok Aren-Ulujami (+25.0%) and Surabaya-Gempol (+16.7%), while the lowest is for Palimanan-Kanci (+5.9%). However, a new tariff for Class I vehicles on the Semarang toll road (section A, B and C) remains the same, simply because of rounding proposition - every hike below Rp250 will be rounded down, and will be accumulated in the next adjustment in 2013. Overall, those toll roads are enjoying a 10.8% tariff adjustment on average, contributing all in all around 71.4% of JSMR's revenue in our FY11E, and as the new tariff will just be imposed from Oct11, more impact is to be seen in 2012. We forecast FY12 revenue to grow by 14.1% YoY, higher than that in FY11 of 12.1% YoY.
No Concern about Traffic Volume. We believe the tariff increase on 7 Oct11 will not affect traffic volume growth in this year, given the defensive nature of its business. For instance, traffic volume in 2007 and 2009 were still growing by 3.6% YoY and 4.1% YoY, in spite of 20% and 15% tariff adjustments in the respective years. Hence, we estimate traffic volume this year to grow by 6.1% YoY, exceeding 1.0tr vehicles for the first time, while 8M11 traffic volume has reached 706.6m vehicles, implying 69.5% of our FY11 estimate.
Surabaya-Mojokerto Section 1A in Operation. Waru-Sepanjang, a segment of Surabaya-Mojokerto toll road, has been in operation since 5 Sep11, with a tariff of Rp1,500 for Class I vehicles. Elsewhere, the Semarang-Ungaran toll road has been operating in a trial period during Aug11-Sep11, and currently the company is in a tariff negotiation process. Therefore, we expect it can go into operation this year. Based on our calculation, given the rate per km is Rp458.0, the toll tariff for Semarang-Ungaran is set at Rp5,000-Rp5,500 for class I.
Maintain our BUY Recommendation. Tariff adjustment on 11 of JSMR's toll roads by 10.8% (on average) this Oct11 is still in line with our expectation of 13%. Unchanged Class I tariff on Semarang toll road also only has a minor impact, as it contributes just 1.5% of our FY11E revenue. Therefore, we prefer to maintain our forecast at the moment, and stand by our BUY recommendation, with TP of Rp4,300.
Adding weight to our call are new revenue streams from the operation of 2 new toll roads, more acquisition plans in the future and its defensive nature of business amid concerns about global economic slowdown.