Jasa Marga (JSMR IJ, Rp3,375 BUY) Strong 1Q11 traffic - Danareksa

Strong 1Q11 traffic
Jasa Marga is benefiting from growth in the infrastructure sector, which is showing its resilience despite heightened inflationary concerns. In 1Q11, traffic grew a robust 8.9% yoy to 246.8mn vehicles, as the economy continues to grow further. The traffic figure for 1Q11 was in line with our expectations. Surprisingly, traffic growth was driven by the supposedly mature sections such as Jagorawi, Jakarta Cikampek, Jakarta Tangerang and the inner city toll road. And looking ahead, more growth may come from modifications to toll gates and from road widening which would help ease traffic congestion on some toll roads. Risks center on possible restrictions on the usage of subsidized fuel for private motorists, now set to come into effect in mid-2011.

Newer sections showing promise
Newer toll road sections such as BORR and JORR are also performing well. Only the first section of the BORR has been operating since November 2009, but it posted robust growth of 34% yoy to 2.1mn vehicles. This translates into an average of 23,400 vehicles per day. In our view, Jasa Marga should continue with the development of BORR section 2 since traffic levels support its development. As for the JORR, it also showed strong traffic growth (up 10.5% yoy to 41.1mn vehicles), supported by widening of the airport expressway (Sedyatmo). Furthermore, Jasa Marga also changed the toll road system from being a “closed system” to being an “open system” benefiting long distance travelers. This helped push traffic growth. Growth coming from the newer sections is more important to the company than growth from the older sections, since the newer sections have much higher average tariffs meaning their contribution to revenues is correspondingly higher.

Earnings revision
Despite strong traffic growth on some sections, we have cut our EPS estimates by 22% for FY11 and FY12 due to sooner-than-expected maturity of the JORR. In addition, we also expect delays to projects such as the Gempol-Pasuran toll road for which expected completion is pushed back to 2013 from 2011. Nonetheless, the Semarang Solo toll road is likely to commence commercial operation sooner than we had expected. This toll road is not incorporated into our model, however, since it is still under evaluation by the Toll Road authority body. With these revisions we arrive at a lower Target Price for the company of Rp4,000.

Maintain BUY
We remain upbeat on the outlook for the company. The strong traffic growth in 1Q11 shows that there is plenty of potential for the company to further expand its toll road network. Even though the JORR is showing sooner-than-expected maturity, we still believe that potential value can be unlocked from the completion of the JORR W2 North section. Currently, this section is not incorporated into our forecast due to slow progress in land acquisition.