CLSA Indo : Infrastructure + Jasa Marga (JSMR IJ) update by analyst Sarina Lesmina

We picked up a couple of infrastructure related news over the weekend. Seems like the country is still moving ahead with some infrastructure projects despite the fact that the land reform bill is not passed yet.  Main beneficiary in the infrastructure space that we like is Jasa Marga (JSMR IJ).

The construction of Jakarta Outer Ring Road W2 from Ulujami to Kebon Jeruk in West Jakarta is expected to begin in June this year, said a government official.

·          Ministry of Public Works said 30% of the 790 land plots of land needed for the project have been acquired, with target of 90% acquisition completed by March2011.  Many landowners were willing to sell after a government decree increased the compensation for the property.  The government office planned to spend Rp610bn to acquire 300 plots next month.

·          This section is crucial as it will complete the Jakarta Outer Ring Road 1 which runs ~70km around Jakarta city.

·          This project of 7.7km is 65% owned by Jasa Marga (JSMR IJ), and as per government’s regulation, the government is the responsible party for land clearing under the land revolving and land capping fund, which allows Jasa Marga to manage its cashflow better since the company only need  to pay the land clearing cost after the land is acquired by the government with payment capped at maximum 10% additional of the initial cost in the agreement.  As we noted previously, we like JSMR as an inflation-hedge play, its ability to manage cost and to leverage on traffic growth as it rolls out its seven new toll road projects.

West Java administration is reported to construct a new airport near Bandung, which will connect the city by the planned Cisumdawu toll road.  The administration has already freed up 500ha of land for this, and need to free up another 420ha before it can start building the road. Acquisition cost expected to be Rp485bn, with Rp1.2tn estimated construction cost.