Jasa Marga (Persero), Final Results Concern over rising personnel cost - Kim Eng

What’s New
􀂃 Jasa Marga’s FY10 net profit of Rp1.19t was in line with our estimate and marked a 20.2% y/y increase for the company. But operating profit was below our estimate due to a surge in operating expenses.
􀂃 Traffic volume was up 4.4% y/y to 956.9m vehicles in 2010, continuing a steady uptrend to set a growth record for the past five years.

Our View
􀂃 Higher‐than‐expected operating expenses, especially G&A expenses, caused our forecast to differ greatly from the company’s actual performance. We are stumped by the massive 36% y/y jump in G&A’s salary expense, which would work out to almost Rp100b, due to higher salary increase (17% in 2010 versus 8% usual increase) and additional allowance for Ied Mubarak. This was in stark contrast to salary under other categories which saw only a 7‐11% y/y rise.
􀂃 Traffic growth has picked up pace to 4.7% y/y in 2011, mainly because of robust car sales in recent years, including 2010, which have translated to higher traffic volume. We also expect contribution from two new roads which are slated for operation in 2H11.
􀂃 FY11 revenue will also be boosted by the bi‐annual tariff adjustment, which is due to be made in October this year. We expect around 10‐11% increase, based on the trailing inflation rate in the past two years.

Action & Recommendation
􀂃 We cut our terminal growth rate assumption for Jasa Marga by 1ppt to 6% on lower margin assumption. Our TP is thus reduced to Rp4,200 from Rp4,600 previously. We see upside to our assumptions if the proposed land acquisition bill, currently under review, is enacted. A possible downside risk is the increase in cost. Our TP is pegged at FY11F PER of 20.6x and EV/EBITDA of 12.3x.