Jasa Marga

Rp2,550 - BUY

Sarina Lesmina CFA Leaner operation

sarina.lesmina@clsa.com Jasa Marga, the largest toll road operator in Indonesia is well positioned

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to benefit from the strong economic growth of the country, and to extend
its dominance. Through increasing productivity, the company managed
to book a higher than expected 2Q10 earnings as margin expands.
Further margin expansion is probable as the company pushes forward
with its cost management, and the e-toll system. We increased our profit
forecasts and our fair value for the company at Rp2,950/sh. BUY.

Better than expected cost management

Jasa Marga reported a better than expected 2Q10 earnings which forced us to
28 July 2010
re-assess the company’s business. EBITDA margin expanded to 65.6% in
2Q10, the highest in their history. Margins have expanded steadily in the
Indonesia past four years. Operational margin also expanded to 53.6% from 50.5% in
Miscellaneous the previous quarter. This came mainly by increasing productivity and
outsourcing ~20% of its workforce. Operational leverage due to traffic growth
Reuters JSMR.JK also contributed to the earnings growth. 3-months ROE had expanded to
Bloomberg JSMR IJ
4.8% in 2Q10 from 2.9% in 1Q09.
Priced on 28 July 2010
Jakarta Comp @ 3,057.5 Potential further margin expansion from e-toll system
12M hi/lo Rp2,600/1,620 An electronic toll payment service was launched in 2009 and is available in
three sections. The plan is to get all remaining eight sections to have e-toll
12M price target Rp2,950 facility by end of 2011. Current transaction volume is at <2% of total
±% potential +16% transactions, however further automation means increasing productivity.
Target set on

Shares in issue 6,800.0m A steady investment

Free float (est.) 27.0% We are increasing our EBITDA margin assumption to 61.7% in 2010. We
believe margins in 2H10 will decrease given historically holiday bonus, and
Market cap US$1,926m
other compensations are paid in the 2H. Nonetheless, we believe margin can
expand further in next years as the company pushes forward with its human
capital management, and the e-toll system. We believe resilient traffic,
3M average daily volume
future expansion, better cost management, lower cost of capital and strong
Rp21.9bn (US$2.4m)
positioning as the largest operator are the key success factors for Jasa Marga.

Major shareholders Fair valuation

Government of Indonesia 70.0%
Management and employee 3.0%
We increase our profit forecasts by ~10-17% for 2010-12, on the back of
higher margin assumptions. Our TP is also increased to Rp2,950/sh, and
based on project IRRs of 13-18%. The stock is trading at 13.4x PER11CL,
and 12.4x PER12CL and our fair value implies 15x PER11CL, and 14x
Stock performance (%)
PER12CL.
1M 3M 12M
Absolute 17.2 24.4 54.5
Relative 13.3 18.1 13.1 Financials
Abs (US$) 17.4 24.8 70.2 Year to 31 Dec 08A 09A 10CL 11CL 12CL
180 Revenue (Rpbn) 3,354 3,692 4,175 4,529 5,257
(Rp) (%)
2,140
Net profit (Rpbn) 708 868 1,099 1,289 1,404
130
NP forecast change (%) 13.6 10.4 16.8
1,770
80 EPS (Rp) 104 128 162 190 206
1,400
EPS (% YoY) 116.4 22.5 26.5 17.3 8.8
30
1,030 PEx (@Rp2,550) 24.5 20.0 15.8 13.4 12.4
660 -20 Dividend yield (%) 0.6 2.0 3.4 1.9 2.2
Jul-08 Jan-09 Jul-09 Jan-10
FCF yield (%) 2.2 (1.5) (6.8) (13.8) (13.6)
ROAE (%) 11.3 12.6 14.8 15.8 15.3
Jasa Marga (LHS)
Rel to Comp (RHS) Price/book (x) 2.6 2.4 2.3 2.0 1.8
Source: Bloomberg Net gearing (%) 34.48 43.69 57.46 70.51 93.51
www.clsa.com Source: CLSA Asia-Pacific Markets

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 Leaner operation Jasa Marga - BUY

Better than expected cost management

Cost efficiency from labor
management drives
higher margin
Jasa Marga reported a better than expected 2Q10 earnings which forced us to
re-assess the company’s business. Revenue for 2Q10 increased 8.0% QoQ,
however net profit expanded by 13.6% to Rp345bn, due to better than
expected margin.

EBITDA margin expanded to 65.6% in 2Q10 from 63.7% in 1Q10, making

1H10 margin at 64.7% the highest in their history. Margins have expanded
steadily in the past 4 years. This came mainly from increasing productivity
and outsourcing ~20% of its workforce, mainly in the toll collection work.
Operational leverage due to traffic growth also contrburted to the earnings.

“Salaries & Allowances” as % of revenue had trended down to just 14% in

2Q10 as a combination of lower cost and stable revenue growth. “Salaries &
Allowances” make up ~60-65% of total operating cost (excluding
depreciation).

Figure 1 Figure 2

Jasa Marga’s margin trend “Salaries & Allowances” as % of revenue

70% 30%

65% EBITDA margin

25%
60% EBIT margin
55%
20%
50%
45% 15%
40%
35% 10%

30%
2006 2007 2008 2009 1Q10 2Q10 5%
07

07

07

07

08

08

08

08

09

09

09

09

10

10
1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q
Source: Company Source: Company

ROE on a QoQ basis had also expanded, as shown in the following table.
3-months ROE expanded to 4.8% in 2Q10 from 2.9% in 1Q09.

Figure 3

Key earnings statistics (Quarterly)

1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10
(Rpbn)
Revenue 799 827 874 854 833 870 916 1,073 1,011 1,092
EBITDA 468 460 491 389 480 448 535 559 645 718
EBIT 362 354 379 277 369 320 404 424 512 584
Net Profit* 189 176 190 153 197 199 215 258 303 345
(%)
EBITDA margin 58.5% 55.6% 56.2% 45.5% 57.6% 51.5% 58.3% 52.1% 63.7% 65.8%
EBIT margin 45.3% 42.8% 43.4% 32.4% 44.3% 36.8% 44.0% 39.5% 50.6% 53.5%
Net Profit margin 23.6% 21.2% 21.7% 18.0% 23.6% 22.9% 23.5% 24.0% 30.0% 31.6%
ROE** 3.1% 2.8% 3.0% 2.3% 2.9% 3.0% 3.2% 3.6% 4.0% 4.8%
Note:
* We adjusted 3Q09 net profit by stripping out a Rp124bn one-time capital gain on investment
** 3 months ROE
Source: CLSA Asia-Pacific Markets, Company

2 sarina.lesmina@clsa.com 28 July 2010

 Leaner operation Jasa Marga - BUY

Potential further margin expansion from

e-toll system
An electronic toll payment system was launched in 2009 and is available in
three toll road sections. The plan is to get all remaining eight sections of Jasa
Marga to have the facility by end of 2011. Current transaction volume is only
at <2%. Nonetheless, further automation means increasing productivity.

A steady investment. We are increasing our EBITDA

margin assumption to 61.7% in 2010 from 58.8% previously. We believe
margins in 2H10 will decrease given historically holiday bonus, and other
compensations being paid in the 4Q. Nonetheless, we believe margins can
expand further in the future as the company pushes forward with its human
capital management, and the e-toll system.

Ave. cost of capital
dropped to 11.97%
Declining cost of capital. Jasa Marga has a bond of Rp650bn expiring
Dec2010, which carries a 16.15% coupon. We believe this can be refinanced
at a lower cost. The company plans to refinance this in 4Q10 and is
expecting to raise approx. Rp1tn while aiming to get a single digit coupon
rate. Note that average cost of capital has dropped to 11.97% from 13.62%
in 2006.

Financing current expansion is not an issue. As of 2Q10, the company

has Rp3.7tn cash, with Rp6.3tn debt with net gearing at 0.4. The company
has secured most of its debt financing needed for its current expansion
(excluding the future acquisitions). Total investment needed is ~Rp20tn, out
of which Rp14tn is debt financed. However, as they expand in the future, we
believe net gearing will increase as fund is required to finance the
development.

Size does matter. Moreover, as the largest toll road operator in Indonesia
with 31 years of history and operating 75% of the country’s toll road network,
Jasa Marga has the most leverage in getting and executing new projects. The
company already has seven projects under its expansion program, a 35%
addition to current portfolio by 2014. Hence, the key lies in managing costs
correctly.

Figure 4 Figure 5

Movement of “Salaries & Allowances” cost Increasing trend of revenue

Rpbn Rpbn
250 1,200

1,100

200 1,000

900

150 800

700

100 600

500

50 400

300

- 200
1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10

Source: Company Source: Company

28 July 2010 sarina.lesmina@clsa.com 3

 Leaner operation Jasa Marga - BUY

Fair valuation
We increase our profit forecasts by ~10-17% for 2010-12, on the back of
higher margin assumptions. Our TP is also increased to Rp2,950/sh, and
based on project IRRs of 13-18%. The stock is trading at 13.4x PER11CL,
and 12.4x PER12CL and our fair value implies 15x PER11CL, and 14x
PER12CL. We believe resilient traffic, future expansion, better cost
management, lower cost of capital and strong positioning as the largest
operator are the key success factors for Jasa Marga. BUY.

4 sarina.lesmina@clsa.com 28 July 2010

 Leaner operation Jasa Marga - BUY

Summary P&L forecast (Rpbn)

Year to 31 December
2008A 2009A 2010CL 2011CL 2012CL
Revenue 3,354 3,692 4,175 4,529 5,257
Operating Ebitda 1,807 2,022 2,576 2,810 3,345
Operating Ebit 1,372 1,516 1,999 2,184 2,587
Interest income 286 297 200 90 70
Interest expense (720) (742) (747) (622) (1,024)
Other items 8 23 0 0 0
Profit before tax 946 1,094 1,453 1,652 1,633
Taxation (224) (212) (353) (409) (405)
Minorities and other (14) (15) (1) 46 176
Profit 708 868 1,099 1,289 1,404

Summary cashflow forecast (Rpbn)

Operating Ebit 1,372 1,516 1,999 2,184 2,587
Depreciation/amort 435 506 576 626 758
Working capital - trade 68 128 (38) 17 27
Other operating items 546 228 535 470 758
Operating cashflow 2,421 2,379 3,073 3,297 4,130
Net interest/taxes/other (664) (648) (901) (895) (1,183)
Cashflow 1,757 1,730 2,173 2,402 2,947
Capital expenditure (1,369) (1,991) (3,354) (4,803) (5,311)
Acq/inv/disposals (6) (181) 0 0 0
Free Cashflow 383 (442) (1,181) (2,401) (2,364)
Ord div paid/Other items (479) (568) (528) (5) (1,097)
Decrease in net debt (95) (1,010) (1,709) (2,406) (3,461)

Summary balance sheet forecast (Rpbn)

Cash & equivalents 3,866 3,355 3,242 1,537 1,076
Debtors - trade 32 65 69 74 86
Inventories - trade 0 0 0 0 0
Other current assets 9 10 11 13 14
Fixed assets 10,407 11,892 14,669 18,847 23,400
Intangible assets 0 0 0 0 0
Other term assets 329 852 909 973 1,044
Total assets 14,643 16,174 18,901 21,444 25,619
Short-term debt 615 2,183 1,290 1,500 3,674
Creditors - trade 217 381 351 377 419
Other current liabs 405 403 401 399 397
Long-term debt/CBs 5,624 4,557 7,045 7,535 8,361
Other long-term liabs 898 906 951 999 1,049
Minorities/other equity 312 562 1,177 1,988 2,057
Shareholder funds 6,572 7,183 7,686 8,646 9,663
Total liabs & equity 14,643 16,174 18,901 21,444 25,619

Ratio analysis
Revenue growth (%) 26.8 10.1 13.1 8.5 16.1
Op Ebitda growth (%) 31.0 11.9 27.4 9.1 19.0
Op Ebit growth (%) 35.0 10.5 31.9 9.2 18.4
Op Ebitda margin (%) 53.9 54.8 61.7 62.0 63.6
Op Ebit margin (%) 40.9 41.1 47.9 48.2 49.2
Net profit margin (%) 21.1 23.5 26.3 28.5 26.7
Dividend payout (%) 35.0 50.0 60.0 30.0 30.0
Tax rate (%) 23.7 19.4 24.3 24.7 24.8
Ebitda/net int exp (x) 4.2 4.5 4.7 5.3 3.5
Net debt/equity (%) 34.5 43.7 57.5 70.5 93.5
Gross debt/equity (%) 90.6 87.0 94.0 85.0 102.7
Net debt/op Ebitda (x) 1.3 1.7 2.0 2.7 3.3
Gross debt/op Ebitda (x) 3.5 3.3 3.2 3.2 3.6
Return on equity (%) 11.3 12.6 14.8 15.8 15.3
ROCE (%) 15.5 15.1 15.9 13.6 12.7
Return on assets (%) 5.0 5.6 6.3 6.4 6.0
Source: CLSA Asia-Pacific Markets

28 July 2010 sarina.lesmina@clsa.com 5

 Leaner operation Jasa Marga - BUY

Recommendation history - Jasa Marga JSMR IJ

Date Rec level Closing price Target
10 September 2009 BUY 1,780.00 2,520.00
09 December 2008 BUY 800.00 1,100.00
11 August 2008 BUY 1,280.00 1,700.00
Source: CLSA Asia-Pacific Markets

Key to CLSA investment rankings: BUY = Expected to outperform the local market by >10%; O-PF = Expected to outperform the local market
by 0-10%; U-PF = Expected to underperform the local market by 0-10%; SELL = Expected to underperform the local market by >10%.
Performance is defined as 12-month total return (including dividends).

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6 sarina.lesmina@clsa.com 28 July 2010