PT Jasa Marga (JSMR) The Highway Star - AAA

JSMR is clearly the star in its field as it is by far the largest toll road operator in Indonesia controlling about 86% market share (in terms of toll traffic) with steady growth in revenue and profit. The outlook for JSMR is promising considering its strategic role in the Indonesian development. Plus, the government is very supportive in speeding up toll-road development. Using DCF valuation with WACC of 14%, the fair value of JSMR is at Rp4,500, implying a PBV of 3.5x. BUY.

± The Importance of Toll-Road in Indonesian Economic Development. As the first and largest toll-road operator, JSMR fulfills a strategic function within the Indonesian economy. Along with its rapid economic growth, Indonesia is now experiencing a chronic bottleneck in its infrastructure. Additional toll-road is a necessity and JSMR is naturally the beneficiary of this situation.

± Government Support. Policies on land capping, revolving fund and periodic tariff adjustments provide solid foundation for JSMR’s expansion plans in the future and will also reduce business risk associated with rising land prices, as well as the legal uncertainty.

± JSMR Has The Competitive Edge. JSMR owns the busiest toll-roads in Indonesia, those are Camareng, Jakarta-Cikampek and Jakarta-Tangerang. Furthermore, JSMR also possesses long concession period with an average of approximately 32 years.

± Good Financial Performance. JSMR has a reliable revenue stream, thanks to the inelastic demand of toll-road users to changes in toll tariffs. The toll users are also insusceptible to the stands of the economy. Stability of revenue, combined with efficient cost management led to healthy operating profit margin and net profit margins of 45% and 27% as of FY 2010 respectively. All in all, JSMR is surrounded with the right climate for growth and it is keenly paving the way for the future.

± Valuation. Taking into account JSMR revenue growth from new toll roads, and using DCF method as the basis of our valuation we arrive at the fair value of Rp4.500. This fair value derived by WACC level of 14%, implying a PBV of 3.5x. The risks to our TP are unexpected changes in toll rates, toll traffic volume growth and changes in risk free rate. BUY.