JSMR 1H11: Indonesia’s growth-proxy - AAA

JSMR’s 1H11 came within consensus estimates, backed by healthy traffic volume growth with operating margin in 1H11 maintained at 52% the same level with that of in 1Q11 and in 1H10. While we expect margin will slightly decline in the 2H11 due to higher personnel expenses for holiday seasons, we come up with higher YoY profitability margins this year. We see JSMR as proxy for Indonesia’s growth story. Our 10-year DCF calculation with WACC of 10.1% and LTG of 1% resulted in target price of Rp4,800/ share for JSMR. Maintain our BUY recommendation.

1H11 Results. JSMR reported 1H11 revenue of Rp2.36tn, 12.2% YoY growth, with operating profit of Rp1.22T, +12% YoY, and net profit of Rp752bn,+16% YoY. Results were backed by 12% YoY increase in daily traffic in 1H11 to 2.9mn vehicle, with stable blended tariff per vehicle of Rp4,442 (-1%, YoY) in 1H11. Operating profit grew by 12% YoY to Rp1.2tn, posting a stable YoY operating margin at 52% in 1H11 the same level of 1H10. On QoQ basis, total revenue increased by4.4% to Rp1.2tn, while operating profit by 4% to Rp626bn, and net profit by 2.6% to Rp381bn, with traffic volume of 266mn vehichle, +5% QoQ.

Beneficiary of Indonesia’s growth story. JSMR business traits match well with Indonesia’s ambition to reach annual economic growth of 7-9%. First, JSMR tariff is automatically increased every two years at the amount tied to inflation rate. Second, traffic volume has been insensitive to tariff hike. Third, JSMR is the first toll road operator and investor in Indonesia with major market share. Fourth, JSMR has current ample road capacity to absorb volume growth with constructions portfolio in the pipe-line. Fifth, current improved profitability as a result of economies of scale and cost management. To back up its ambition, in late May this year, the President of Indonesia announced a Master plan for Acceleration and Expansion of Indonesia Economic Development 2011-2015, known as the MP3EI. In this master plan the Government aims to achieve acceleration for growth 7-9% per year. We see a slightly decreasing execution risks, as the Government later, established a committee called a KP3EI to regularly oversee progress, headed by Minister of Coordinating for Economic Affairs. We see increasing contribution of JSMR for the country provision of toll roads basic infrastructure need for economy growth.