COMPANY ALERT, Jasa Marga, Inflation hedge, Deutsche Bank

Higher inflation following fuel price hike
The government plans to increase fuel price from 1st April 2012 (subject to
Parliament's approval) in order to prevent the budget deficit from exceeding
the maximum threshold 3% of GDP (prescribed by the law) following global
oil price rise to >US$120/bbn. Based on Bank of Indonesia (BI)'s analysis,
they estimate that inflation could reach 7% post the fuel price hike with
base case assumption of Rp1,500 (+33%) increase in fuel price.


Inflation hedge through tariff increase
We believe JSMR would be able to withstand higher inflation post fuel price
hike given their ability to increase tariff in line with inflation every two years.
Indeed, the government has kept its commitment to raise tariff as JSMR's
two toll roads are scheduled for tariff increase (estimated 10-12%) in July
this year, albeit subject to passing the Minimum Standard Service. Based
on our sensitivity analysis, we estimate 1% rise in tariff would translate into
2.5% higher net earnings in 2012F.

Reiterate Buy on Jasa Marga with TP of Rp6,575
We remain upbeat of JSMR's outlook going forward given it is the main
beneficiary to strong Indonesian economy and improving regulatory environment.
Aside from higher traffic volume and favorable tariff regime, we
expect its superior earnings (21% p.a. in 2012-13F) to be further amplified
by its cost initiatives, not to mention upside from completion of nine toll
projects that we have not included. Overall, the stock that is currently trading
at 17x 2012F earnings has performed well, up by 10% YTD and outperforming
the JCI by almost 10% YTD.

Download file : JSMR_Inflation hedge