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Jasa Marga (JSMR IJ) Summary

Core Content

Jasa Marga (JSMR IJ) is an Indonesian transportation company listed on the Indonesia Stock Exchange (IDX). The company is expected to maintain its BUY rating with a revised target price of IDR7,000, which reflects a 20% increase from its current share price. JSMR's share price underperformed in 2013 due to a combination of higher salary costs and a lower toll road revenue growth rate, but the firm believes that most of the negative news has been priced in, and that earnings growth is set to resume.

Main Points

• Share Price and Market Cap:

  • Current share price: IDR5,825
  • Market Cap: USD3.5B
  • Target Price: IDR7,000 (+20%)
  • Free float: 30%
  • Major shareholder: Government of Indonesia (70%)

• Earnings Growth:

  • JSMR's FY14F earnings are expected to grow by 24% YoY, driven by the positive impact of the 2013 tariff adjustment and additional tariff adjustments on two routes in 2014.
  • Earnings are projected to grow at a 20% CAGR from FY14F to FY16F.
  • Core net profit is expected to rise from IDR1.34t in FY13A to IDR2.31t in FY16E.

• Traffic Growth:

  • Traffic volume growth is forecasted to be 7% YoY in 2014F, higher than the historical average of 4%.
  • The commencement of six new toll roads with a total length of 46km is expected to underpin this growth.
  • The completion of JORR W2 North will significantly boost traffic flow by connecting with existing routes and reducing congestion.

• Tariff Adjustments and Inflation:

  • The 2013 tariff adjustment on 14 routes, which ranged from 12% to 18%, helped to increase toll revenue growth to 18.7% YoY in FY14F.
  • Inflationary pressures are expected to lead to higher tariff adjustments on two key routes in 2014: Sedyatmo (access to Soekarno-Hatta Airport) and Jakarta-Cikampek.
  • The impact of these adjustments is expected to be more pronounced in even years due to the timing of adjustments.

• Cost and Margin Trends:

  • Salary expenses, which account for 30% of total costs, grew by 18% YoY in 9M13 due to higher minimum wage and increased staffing.
  • The minimum wage increase in 2014 is expected to be milder (10% YoY) compared to 2013 (44% YoY), providing cost relief.
  • Operating margin is projected to improve from 24.2% in FY13 to 24.5% in FY14F.

Key Information

• Financial Highlights (FYE Dec):

  • Revenue: IDR9,070.2bn (FY12A) → IDR12,276.0bn (FY14E) → IDR16,333.3bn (FY16E)
  • EBITDA: IDR3,366.3bn (FY12A) → IDR4,046.6bn (FY14E) → IDR5,506.6bn (FY16E)
  • Core net profit: IDR1,602.1bn (FY12A) → IDR1,650.6bn (FY14E) → IDR2,311.7bn (FY16E)
  • Core EPS (IDR): 236 (FY12A) → 243 (FY14E) → 340 (FY16E)
  • Core P/E: 24.7 (FY12A) → 24.0 (FY14E) → 17.1 (FY16E)
  • P/BV: 4.6 (FY12A) → 3.8 (FY14E) → 3.0 (FY16E)
  • Net dividend yield: 1.3% (FY12A) → 1.1% (FY14E) → 1.6% (FY16E)
  • ROAE: 17.7% (FY12A) → 14.4% (FY14E) → 16.1% (FY16E)
  • ROAA: 7.0% (FY12A) → 5.3% (FY14E) → 6.1% (FY16E)
  • EV/EBITDA: 2.4 (FY12A) → 3.7 (FY14E) → 3.1 (FY16E)

• Outlook and Strategy:

  • JSMR is expected to benefit from new toll road projects, including the completion of six new routes in 2014, with a total length of 46km.
  • The company is also conducting feasibility studies on additional routes, including the Daan Mogot - Soekarno Hatta Airport and the Sunda Strait Bridge.
  • The end of the grace period on the land acquisition law after 2014 is expected to further support project development.

• Market Performance:

  • JSMR's share price underperformed the market by 13.3% in 2013 due to margin pressure.
  • However, the company believes the share price is now reflecting all negative news, and the outperformance is expected to continue in 2014.
  • The new target price of IDR7,000 implies a 2015 P/E of 25x, slightly below its +1sd historical trading range.

• Defensive Business Model:

  • JSMR's business model is considered defensive, with consistent earnings growth and a hedge against inflation.
  • The company has historically shown resilience in traffic volume growth even during economic downturns, such as 2006 and 2009.

Conclusion

JSMR is expected to benefit from a combination of periodic tariff adjustments, new toll road projects, and a defensive business profile. The company's earnings are projected to grow at a double-digit rate in FY14F, with a 20% CAGR from FY14F to FY16F. Despite the challenges faced in 2013, the firm believes that the current share price is fully reflective of the negative news, and the outlook for 2014 is positive. The target price of IDR7,000 is based on a DCF model and reflects the company's sustainable growth and strong fundamentals.