Jasa Marga (JSMR-BUY-IDR3,325-TP:IDR4,500) Safe haven - Bahana Sekuritas

Beneficiary of high inflation; Possible higher earnings; BUY
With the threat of rising oil prices to stoke inflationary pressure on the domestic economy, Jasa Marga (JSMR) is set to benefit from potentially higher tariff adjustments, which are calculated based on accumulated two consecutive years of Indonesia’s inflation rate. In 2011, tariff adjustment is slated for implementation on 12 routes in September (exhibit 9). Periodic tariff adjustments would undoubtedly offset potential risks of lower traffic volumes due to higher gasoline prices. Additionally, margin expansion would normally unfold in 2012, the year following higher tariff adjustment (i.e. 2011), lifting earnings growth to more than 20%. As such, in addition to its inflation hedge status, we are confident of JSMR’s capability to deliver sustainable earnings growth, which we project to reach a 5-year CAGR of 18%. Thus, we reiterate our BUY call on JSMR. While our target price of IDR4,500 is remains unchanged for now, we believe that further upside exists given that there is potential for higher earnings revisions going forward.

Consistent traffic growth in the past five years; January: +8.6% y-y
While higher gasoline prices may result in lower 2011 traffic volumes, we believe that the adverse impact would be insignificant. This is mainly due to the resilient pattern of traffic volumes in the past five years, which has consistently grown by an average of 3% per year. In January, traffic volumes grew 8.6% y-y to 83.3m units, much higher than our 2011 growth estimate of 2.2% y-y. This was mainly caused by the completion of lane extensions on several routes in 2010, creating higher traffic flows. In 2011, JSMR plans to continue lane extensions on several routes, namely Jakarta – Cikampek and Jagorawi. Additionally, it is worth noting that major traffic volume contribution (38%) stemmed from two routes (Camareng & JORR) located within the greater Jakarta area. Thus, we believe that a significant boost would materialize upon the completion of JORR W2, slated for completion in 2012 (Current status: land acquisition has reached around 50%).

Above-industry-average pace on the progress of new toll roads
In 2011, JSMR has raised its capex to IDR7.2t (From IDR6t previously), of which 50% would be allocated to the parent company, while the remaining would be used for expansions by the subsidiaries, particularly for the construction of Ungaran – Bawen (11.3km) and Surabaya – Mojokerto (17.8km). We believe that despite uncertainties on the imposition of the new land acquisition regulation, the pace of progress on the development of new toll roads remains faster than the industry average. Concurrently, JSMR remains on the lookout for potential acquisition of new toll roads. Recently, JSMR has expressed interest to build a new toll road in Bali, Serangan – Tanjung Benoa (11.5km), which would become an alternative road from Nusa Dua area to the airport. While it is still in a nascent stage of development, the government has urged completion to materialize before the APEC summit in November 2013.