Jasa Marga TP Rp6,200

Safeguarding growth
Lower-than-expected FY11 earnings on higher tax rate. Jasa Marga’s (JSMR) FY11 earnings of Rp1.4t fell slightly short of our estimate owing to a higher tax rate of 23.6% vs our forecast of 20%. The higher-than-expected rate stemmed from the different tax treatment for each of its toll road asset. Operations-wise, JSMR recorded a 14.7% YoY growth in operating profit to Rp2.3t, buoyed by higher tariffs implemented on two routes in 2010 and another 11 routes from last October. The higher tariffs coupled with stable operating expenses resulted in gross margin expanding to 46% from 45% a year ago.

Still positive on tariff and traffic growth. Three factors keep us positive on JSMR in 2012. They are: (1) the full impact of the 11% tariff hike on major routes in September last year that should kick in and additional adjustment on two routes this year, (2) sustainable traffic growth of 3.4% (barring a change in traffic system), and (3) the operation of a new route in Central Java and East Java. Operationally, we expect margin to continue to improve, expanding to 47% from 46%
in 2011. In fact, JSMR’s operating margin has consistently expanded in the past five years by 200bp pa on average, given higher top line growth (five-year CAGR: 21%) compared to operating expenses (fiveyear CAGR: 16%). Thus, we expect the regulated biannual tariff
adjustment to underpin sustainable earnings growth going forward.

Raise TP to Rp6,200 on lower WACC and higher LT growth; BUY. We adjust our FY12F-13F forecasts slightly to take into account higher tax rate assumptions. Nevertheless, regulated tariff adjustments and stable traffic growth should continue to underpin JSMR’s short-term earnings, while completion of new projects would shore up its mediumto long-term earnings growth. We have also assumed a lower WACC of 11.5% (12.5% previously) and higher long-term growth rate of 4.5% (3% previously). Our TP thus increases to Rp6,200 and we reiterate our BUY rating. Despite the stock trading at an all-time high FY12F PER of 20.1x (PEG 0.8x), earnings growth should be sustainable as its growth profile is safeguarded and hedged against inflation.

source: KIMENG dated 5 April 2012