PT Jasa Marga Tbk (JSMR) Super Company, Super Highway - AAA

JSMR reported its strong financial performance in 1H11 delivering consistent growth. Promising outlook for JSMR remains intact considering its strategic role in the Indonesian development. Plus, the government is very supportive in speeding up toll-road development. We have factored in the higher traffic volume and tariff increased on our model, and maintained our TP at Rp4,500.

± Revenue increased by 12.2% YoY to Rp2.36 tn backed by the higher traffic volume. The latter increased by 13% YoY to 525.2 million vehicles compare to 464.6 million at previous year. This 1H11’s revenue achievement reflects 49% of our estimation. Cawang-Tomang Cengkareng (CAMARENG) is the largest revenue contributor which accounted for 24.4%, meanwhile Jagorawi and Jakarta outer ring road (JORR) are in the second and third position contributed 15.94% and 15.89% respectively. In total, these toll roads generated 49% of JSMR revenue.

± Operating expense increased by 12.4% YoY to Rp1.13 tn. However, this increase did not have a significant impact on operating margin, which was stable at 52%. Salary and allowance for ticket booth operators were the largest component of operating expense that accounted for around 34%. JSMR is currently in the process of implementing the transition from the human-based system to technology-based toll collection fee, e.g. e-toll card, to keep operating expenses under control.

± Net income increased by 16% YoY to Rp752 bn. Although the operating expenses increased, JSMR was quite successful to maintain net income margin at 32%, unchanged from previous period. Apart from effective operation cost control, the higher interest income and lower amount of other expenses also contribute positively to the bottomline income in 1H11.

± Benefiting from tariff adjustment in 2H11. According to the Toll Road Law no. 38 of 2005, we will see the implementation of tariff adjustment in 2H11. Referring to the accumulated inflation for the last two years, the average tariff will increase by around 13%. This adjustment will be reflected in revenue growth and net income this year. As demand for toll road is inelastic, the tariff adjustment will not negatively affect traffic volumes.

± Valuation. We have factored in the volume and tariff increase (of around 13%) in our model and maintained our TP at Rp4,500. Our TP offer 10% upward potential, for the time being we recommend BUY.