Jasa Marga (JSMR IJ, Rp3,525 BUY) On the right road - Danareksa

Solid traffic
Jasa Marga changed its toll road traffic accounting system in March 2011 because of adjustments related to relocation of new toll gates. Under the new system, traffic will be double counted on some sections. This means that a y-o-y comparison can no longer be made. In total, traffic reached 90.2mn vehicles in May 2011, or translating into 2.9mn vehicles per day (+12.3% yoy, +0.5% mom). On a monthly comparison, traffic on the Semarang toll road grew a very healthy 23.2% mom to 3.1mn vehicles thanks to additional lanes (from 2x1 previously to 2x2) which increased capacity and improved traffic flow.

Truck restrictions on the inner city toll road made permanent
The regional government of Jakarta has introduced restrictions on trucks using the inner city toll road from 5.00am-22.00pm. These restrictions were first introduced whilst the ASEAN Conference was being held in early May but proved so effective that the restrictions were then extended until June and finally made permanent in an effort to help reduce Jakarta’s chronic traffic congestion. In May 2011, traffic on the inner city toll road was unchanged at around 522,000 vehicles per day. This suggests the truck restrictions are not affecting traffic. Although trucks are not allowed to enter the Cawang Tomang Pluit stretch – which cuts through the heart of the city – they can effectively re-route through the alternative Cawang – Tj Priok-Pluit stretch which is located in the east of the city. The benefits of the restrictions are clear: much better traffic flow during daytime hours and greater usage of the toll road late at night by the trucks. Nonetheless, some bottlenecks have occurred at the port and there has been congestion on alternative roads. As such, it is vital that Jasa Marga finishes the JORR W2 North section to link up with JORR in a completed circle around Jakarta. Besides this, the government will also need to speed up development of the harbor link at the northern tip of the JORR toll road to provide better access to the harbor.

Jasa Marga signs new toll road agreements
The government has undertaken reviews on 24 undeveloped toll roads. In this regard, Jasa Marga has signed amendments on six toll road agreements with the government, namely: 1) Surabaya-Mojokerto 2) Cengkareng-Kunciran 3) Kunciran-Serpong, 4) JORR W2 North, 5) Gempol-Pandaan and 6) Gempol-Pasuruan. The amendments cover project rescheduling, the size of the investment, and recalculation of the IRR and concessionary period. Jasa Marga is among the first to agree to the amendments.

Maintain BUY
Jasa Marga is the only toll road operator to consistently deliver new toll roads. Moreover, it may also be possible for Jasa Marga to acquire other toll roads that are being reevaluated by the government. Its strong track record in toll road development has helped the company to become recognized as the so-called preferred bidder. BUY maintained with a Target Price of Rp4,000 that translates into PER FY11-12 of 19.7 -15.6x and EV/EBITDA FY11-12 of 12.7-10.3x.