26 June 2019 Jasa Marga (JSMR IJ) Re-initiating coverage
BUY (Unchanged)
StockData Poised on monetizing synergy cycle Target price (Rp) Rp6,625 Impetus for entire traffic growth lies on toll road interconnection. Prior TP (Rp) n/a The underlying earnings feature are both non-cyclical and lucrative. Shareprice (Rp) Rp5,800 Upside/downside (%) +14.2 Securitization is a keystone of weathering expansion adversity. Sharesoutstanding (m) 7,258 We re-initiate a coverage on JSMR with BUY rating and TP of Rp6,625. Marketcap. (US$ m) 3,096 Toll interconnectivity drives future traffic growth. Jasa Marga (JSMR) is an Free float (%) 24.5 Indonesian leading toll road company that operates 1,342km road and holds 33 Avg. 6m dailyT/O (US$ m) 3.1 concessions, whose period is the longest in Asia, spanning across provinces and islands.
JSMR owns extensive toll road network which puts company in greater position to Price Performance capture the synergy on upcoming new subset of Trans Java toll roads, as our research 3M 6M 12M suggests toll road interconnectivity to be the main driver of traffic growth, with Absolute (%) 13.6 40.0 42.4 elevated Jakarta – Cikampek to bring an extended effect to invigorate the overall traffic Relative to JCI (%) 16.5 37.3 32.9 growth in FY20F by latest. We forecast a modest growth on nation-wide JSMR traffic by 6.5%/7.2% in FY19F/20F. 52whigh/low (Rp) 6,175 - 3,820
Open-system to boost earnings. Recently, JSMR introduced an opened-system on its 150 highly dense toll road section in Tangerang (April 2017), Jagorawi (September 2017), 140 JORR (September 2018), and Cikampek (May 2019).This system should positively 130 affect JSMR in three aspects. First, open-system de-bottlenecks traffic and thus results 120
IndonesiaInfrastructure | 110 to higher traffic turnover. Second, it requires a one-time payment and thereby raising
100 operating efficiency due to lower gate operators. Third, it opens a room for biannual
90 tariff adjustment for several toll roadsthat sees an absence on this. Our analysis reveals
80 that the net effect of opened-system is positive despite a temporal traffic shrinkage.
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- - - This is due to inelastic demand profile across regions as implied by low mid-price
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Oct Apr Oct
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Feb Feb Mar
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Aug Aug Nov Dec Dec May May elasticity scoring at 0.05, 0.40, and 0.47 for JSMR’s Jakarta, Java excl. Jakarta, and ex- JSMR-Rebase JCI Index-Rebase
Java region, respectively. The underlying earnings are also non-cyclical and lucrative as Equity Equity | Major Shareholders suggested by JSMR’s stable EBITDA margin (60%-76%) in matured region (Jakarta); Government of Indonesia 70.0% this embodies a long-term prospect on JSMR’s newly-built assets.
BPJS Ketenagakerjaan 3.3% Securitization benefit is pervasive across financial statements. Asset-based PT Taspen 2.2% securities (ABS) have several key benefits. First, it enables raising fresh fund by Estimate Change; Vs. Consensus securitizing new operating assets that exhibits demand merit, with a bonus of one-time 2019F 2020F gain. Second, some ABS allow better earnings management as accounting treatment requires earnings deconsolidation on the securitized asset. This benefit is particularly Latest EPS (Rp) 270 304 pronounced in the securitization of newly-operated asset to avoid consolidating Vs. Prior EPS (%) - - negative earnings and cash flows in early periods. In addition, JSMR guided to Vs. Consensus (%) 1.8 0.6 introduce step-up loan and hybrid zero-coupon bond in which our sensitivity analysis shows FY19F net profit should be 18%-27% higher than our base case and overall ICR Source: Bloomberg to hover higher at 1.9x – 2.1x (vs. base-case at 1.7x).
Valuation. We initiate JSMR with BUY rating and our SOTP-derived TP of Rp6,625
implies that current price to reflect only 51% of JSMR’s new toll road. Our TP translates to a target EV/EBITDA of 15.1x (below 10-yr average EV/EBITDA of 20x). Also, EV/km of JSMR (at $2.7mn) comes slightly below the median of regional peers (at $3.1mn). Upside risk includes the deleveraging plan of JORR that adds 2.5% to our TP.
Year To 31 Dec 2017A 2018A 2019F 2020F 2021F
Revenue (RpBn) 9,080 9,970 10,527 12,061 13,752
EBITDA (RpBn) 5,160 5,687 6,168 7,411 8,833
EBITDA Growth (%) 7.8 10.2 8.4 20.2 19.2
Net Profit (RpBn) 2,200 2,202 1,961 2,209 2,589 EPS (Rp) 303 303 270 304 357 EPS Growth (%) 16.5 0.1 (10.9) 12.6 17.2 Net Gearing (%) 164.1 153.3 191.8 190.6 193.0 Willy Goutama PER (x) 19.3 19.3 21.7 19.2 16.4 PT Indo Premier Sekuritas PBV (x) 2.2 2.0 1.9 1.8 1.6 [email protected] Dividend Yield (%) 1.3 1.0 1.3 1.5 1.8 +62 21 5793 1168 EV/EBITDA (x) 14.2 13.1 14.2 12.3 10.8 Source: JSMR, IndoPremier Share Price Closing as of : 24-June-2019
Refer to Important disclosures in the last page of this report
JSMR Re-initiating coverage
Fig. 1: Toll road interconnection to drive future traffic Fig. 2: Demand is less susceptible to tariff hike
1,800 30% 2.0 1.973 1,600 25% 1.8 1,400 20% 1.6 1,200 15% 1.4 1.2 1,000 10% 1.0 800 5% 0.8 600 0% 0.6 0.631 0.479 400 -5% 0.4 0.401 0.312 0.288 0.2 200 -10% 0.050 0.008 0.0 0.014 - -15% Jakarta Java Ex-Java 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F 2021F Low Mid High Jakarta Java excl. Jakarta Ex-Java Traffic Growth (% yoy)
Source: JSMR, IndoPremier Source: JSMR, IndoPremier
Fig. 3: JSMR pockets high market share and growth Fig. 4: Declining bond yield should drive share price upward
8,000 20.0
10% 7,000 18.0 JSMR IJ 16.0 6,000 META IJ 14.0 5% 5,000 12.0 4,000 10.0 CMNP IJ 3,000 8.0 0% 6.0 -15% 5% 25% 45% 65% 85% 2,000 4.0 1,000 2.0 Market Market Growth (%) Rate -5% - -
-10% Relative Market Share (%) Stock Price - LHS (Rp) 10-yr Sovereign Bond Yield - RHS (%)
Source: CMNP,JSMR, META, IndoPremier Source: Bloomberg, IndoPremier
Fig. 5: Forward EV/EBITDA - TP perches below 10-yr average Fig. 6: EV/km – JSMR current valuation is below the median
12.0 45 10.7 9.9 40 10.0
35 8.0
30 6.0
25 3.5 4.0 3.1 2.7 2.6 20 2.0 15 0.4 0.2 - 10 NusantaraTrans Kota WCE Noida Toll Jasa Citra IL&FS MEP Infra 5 Infra Holdings Marga Marga Transport Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Series1 Series2
Source: Bloomberg, IndoPremier Source: Bloomberg, Companies’ Presentation, IndoPremier
Refer to Important disclosures in the last page of this report 2
JSMR Re-initiating coverage
Macroeconomics Overview
Investment-led fiscal expansion are well captured by SOE Toll Road Operators
Indonesian economy has advanced relatively well over the past five year (Fig. 1; RHS) post Jokowi administration assumed the office. Indonesian economic is undergoing a structural shift in its composition where investment comprises a higher proportion of Indonesian GDP to 32% in FY18 (vs. FY08: 28%). The real economic metric, as suggested by a steady increase in real investment-to-GDP (Fig. 2), also indicates that investment is taking place. We believe this is a good indication as higher investment plausibly leads to widespread infrastructure development that will eventually bring a significant future multiplier toward economic growth despite having to bear the cost of short-term decelerated economic growth.
Fig. 1: Indonesian Economic Structure Fig. 2: Real Investment-to-GDP steadily increases
100% 6.5% 12,000 35%
80% 28% 31% 31% 31% 33% 32% 33% 33% 33% 32% 32% 6.0% 10,000 30% 25% 60% 5.5% 8,000 20% 40% 5.0% 6,000 61% 59% 56% 55% 56% 57% 57% 57% 58% 57% 57% 15% 20% 4.5% 4,000 10% 0% 4.0% 2,000 5% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 - 0% Consumption Government Spending 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Investment Net Export and Stats. Discrepancy Real GDP (2010=100, Rptn) - LHS Real Investment (2010=100, Rptn) - LHS Growth (% yoy) - RHS Real Investment-to-GDP - RHS
Source: CEIC, IndoPremier Source: CEIC, IndoPremier
We then observe total infrastructure budget over time in which a large-scale budget expansion took place at the inception of Jokowi’s administration in FY15. This year alone, the government had earmarked Rp415tn worth of infrastructure budget (+1.2% yoyvs. FY18: +2.2% yoy) whose growth seems to be relatively subdued; though it is reasonable given high-base figure from preceding year. The pertaining budget is pretty concentrated on two ministries, Ministry of Public Work and Transport, which altogether account for a third of total infrastructure budget (Fig. 4). These two ministries are instrumental to support government’s ambitious infrastructure plans.
Fig. 3: Infrastructure Budget (Rptn) and Its Share (% GDP) Fig. 4: Infrastructure-related Ministerial Budget (Rptn)
450 410 415 3.5% 401 160 55% 400 140 3.0% 350 317 44 44 45% 43 38 120 40 300 256 100 2.5% 35% 250 26 80 26 25 200 60 25% 156 155 107 146 2.0% 16 95 102 105 102 40 150 114 13 13 69 12 57 64 15% 79 76 86 20 42 100 1.5% 31 30 25 0 5% 50 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 - 1.0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Public Work - LHS Transport - LHS Public Work (% of Infra Budget) Transport (% of Infra Budget) Infrastructure Budget - LHS Proportion (% of GDP)
Source: CEIC, Indo Premier Source: CEIC, Indo Premier
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In addition to aforementioned two infrastructure-related ministries, the government has also decidedly decentralized its infrastructure funding (Fig. 5) in which the allocation is no longer statically distributed to only formal (central government and non-government) institution, but it is also allocated to village funds and for financing purposes. Village funds specifically enjoys significant boost where it recently accounts for nearly half of the pertaining budget. This reflects current government commitment of equitable infrastructure development. The village funds give an explicit authority for the local government to flexibly execute the projects, and actively participate in consortium-based infrastructure (big-ticket utility projects) in timely manner. With this in mind, we believe toll road operators’ capital expenditure could be eased by the support of village funds. It concurrently enables local government directly (owning minority stakes) or indirectly (subscribing to financial instrument issued by toll road operators) involves in the ongoing toll road project by injecting the additional required capital to expedite project completion. This, at the same time, etches implicit intention for local government to actively play a role in national infrastructure development rather than waiting the end of concession period and solely enjoy the harvesting period as in the case of toll road sector.
Fig. 5: The allocation of infrastructure budget Fig. 6: GFCF Composition and Its Growth
100% 100% 16% 10% 80% 14% 80% 16% 6% 6% 6% 6% 5% 5% 5% 5% 5%
29% 46% 46% 49% 60% 12% 60%
86% 87% 40% 10% 40% 82% 80% 84% 82% 74% 73% 73% 73% 75% 75% 75% 75% 74% 70% 69% 49% 20% 8% 20% 40% 41% 38% 0% 6% 0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Bulding & Structure - LHS Vehicles - LHS Government Non-Government Village Funds Financing Other Fixed Capital Spending - LHS Growth (% yoy) - RHS
Source: CEIC, IndoPremier Source: CEIC, IndoPremier
The effort of infrastructure budget decentralization is well reflected in both construction and transportation output (as of respective regional GDP) across major Indonesian regions. The construction output comprises of all infrastructure works,except transportation infrastructure works (land, sea, and air transport facilities and support) that fall under the separate measure labelled as transportation output. First, we evident a decreasing trend on G. Jakarta’s construction output to 12.1% in FY18 (from 14% in FY10) though this trend opens another interpretation which suggests that the capital city hasbeen over-developed andentered a matured stage on construction business and it makes sense since the economic activity has been focused in Jakarta.
Fig. 7: Construction Output (% GDP) in Java Regions Fig. 8: Construction Output (% GDP) in Ex-Java Regions
14.0% 13.0%
13.0% 12.0%
12.0% 11.0%
11.0% 10.0%
10.0% 9.0%
9.0% 8.0%
8.0% 7.0%
7.0% 6.0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2010 2011 2012 2013 2014 2015 2016 2017 2018
G. Jakarta W. Java C. Java E. Java Sumatera Bali and NT Borneo Sulawesi
Source: CEIC, IndoPremier Source: CEIC, IndoPremier
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Second, our reading on construction output trend dynamic on other Java regions shows the decentralization effort has effectively translated into extensive construction projects outside capital city as suggested by higher construction output in W. Java, C. Java, and E. Java of 9.0%, 10.7%, and 9.7% in FY18, respectively (vs. FY10: 7.2%, 10.3%, and 9.1%). Third, Ex- Java’s construction output also shows an up move which is generally identical to Java region. Sumatera, Bali, Borneo, and Sulawesi figures are measured at 11.3%, 9.7%, 9.6%, and 12.8%, respectively (vs. FY10: 9.3%, 8.9%, 7.4%, and 11.2%).
Fig. 9: Construction Nominal Output Growth (%, 8-yr CAGR) Fig. 10: Construction Real Output Growth (%, 8-yr CAGR)
16.0% 14.7% 10.0% 13.3% 14.0% 12.5% 9.0% 12.0% 11.4% 11.6% 12.0% 8.0% 6.4% 9.6% 9.8% 7.0% 10.0% 6.0% 5.8% 6.0% 8.0% 5.0% 5.0% 4.9% 5.2% 4.6% 6.0% 4.3% 4.0% 4.0% 3.0% 2.0% 2.0% 0.0% 1.0% 4.6% 8.4% 5.5% 6.2% 6.7% 7.1% 5.5% 8.6% G. Jakarta W. Java C. Java E. Java Sumatera Bali and Borneo Sulawesi 0.0% NT G. Jakarta W. Java C. Java E. Java Sumatera Bali and NT Borneo Sulawesi
Region Growth (%) Country Growth (%) Region Growth (%) Country Growth (%) Implied Inflation Rate (%)
Source: CEIC, IndoPremier Source: CEIC, IndoPremier
We next display the nominal (Fig. 9) and real (Fig. 10) construction output growth. In terms of nominal measure, there are three regions whose output growth outpacing the national growth, namely West Java, Sumatera, and Sulawesi. In terms of real measure, there are four regions scoring an above-than-national growth, namely West Java, Sumatera, Bali, and Sulawesi. These supporting data emphasize government efforts in executing the infrastructure project in equitable manner across islands. Meanwhile, the difference between nominal and real metrics measures the implied inflation rate on the construction costs in which we see Borneo (6.4%), Sulawesi (6.0%), and Sumatera (5.8%) carry the highest differential which are higher than national gauge (5.3%). We believe these characterize a demand-pull inflation as the real output growth generally dominates the nominal growth creation. The only special case happens to Jakarta and Borneo whose nominal growth share the trait of cost-push inflation which is reasonable given Jakarta seems to be over-developed and Borneo(situated outside Java) require some logistical costs to carry materials and run a construction there.In general, demand-pull inflation reflects vigorous infrastructure development at regional-level which is partly due to the effort of decentralized budget allocation. Strong construction output growth suggests that toll road’s complementing infrastructure constructions (electricity, water, and etc) are underway. This could augment the magnitude of future economic growth multiplier.
Fig. 11: Infra and Logistic Quality Performance Index by WB Fig. 12: Overall Logistical Performance Index by World Bank
3.5 200 92 3.2 90 3.0 62 92 160 3.1 3.2 75 2.5 55 3.0 3.1 41 44 120 60 2.0 85 3.0 73 2.9 3.0 1.5 69 2.9 56 54 80 45 45 2.8 1.0 40 30 0.5 2.7 2.8 2.8 2.8 2.5 2.5 2.5 2.9 2.9 3.2 2.7 3.0 2.9 3.1 - 0 2.6 15 2007 2010 2012 2014 2016 2018 2.5 0 2007 2010 2012 2014 2016 2018 Infrastructure Score Logistic Quality Score LPI Score Ranking Ranking - Infrastructure Ranking - Logistic Quality
Source: World Bank (WB), IndoPremier Source: World Bank (WB), IndoPremier
Refer to Important disclosures in the last page of this report 5
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We lay out another measure, transportation output, which focuses on the construction of transportation infrastructure. As the data suggest, transportation infrastructure output is making up to 30%-80% of construction output as the transportation sector is one of the main agenda of national strategic development plan which has to do with our relatively less competitive infrastructure and logistical quality in which World Bank reported that Indonesia ranked 44 and 54 in FY18, respectively (Fig. 11). Both measures have exhibited improvement since FY14 which demonstrates the prior infrastructure work coming to fruition. In terms of overall logistic performance, World Bank ranks Indonesia on 45th in FY18 with improving scores (Fig. 12). Though, the disparity on logistical quality and performance implies that our infrastructure work on transportation is still skewed toward specific sector or region. This shouldopen a room for government’s attention to refocus on the regional allocation of infrastructure budget in the upcoming future.
Fig. 13: Transportation Output (% GDP) in Java Regions Fig. 14: Transportation Output (% GDP) in Ex-Java Regions
7.0% 8.5% 6.5% 8.0% 7.5% 6.0% 7.0% 5.5% 6.5% 5.0% 6.0% 4.5% 5.5% 4.0% 5.0% 4.5% 3.5% 4.0% 3.0% 3.5% 2.5% 3.0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2010 2011 2012 2013 2014 2015 2016 2017 2018
G. Jakarta W. Java C. Java E. Java Sumatera Bali and NT Borneo Sulawesi
Source: CEIC, IndoPremier Source: CEIC, IndoPremier
We subsequently present the transportation output (as of each respective regional GDP) in the last eight years across different regions (Fig. 13, 14). The figures broadly portray the same trend with the construction output. Transportation works in Java region are generally progressing up, albeit with slower pace vis-à-vis Ex-Java regions. In Java region, the proportion of transport output (% of regional GDP) for Greater Jakarta, West Java, Central Java, and East Jakarta measured at 3.6%, 7.0%, 3.4%, and 3.4% in FY18 (vs. FY10: 2.8%, 4.5%, 3.2%, and 2.7%), respectively. In Ex-Java region, the proportion of the output (% of regional GDP) for Sumatera, Bali, Borneo, and Sulawesi were at 4.1%, 8.1%, 4.9%, and 5.1% in FY18 (vs. FY10: 3.5%, 6.4%, 3.4%, and 4.5%), respectively. West Java and Bali are the two regions catering a pronounced increase on the transportation output (% GDP) trend. Distribution of transport output (Fig. 15) explains that Bali has disbursed significant amount of its regional budget for air transport-related infrastructure, such as renovation of airport or additional air hubs, as Bali is the main destination for many foreign tourists. On the other hand, West Java output is mainly comprised of road construction (Fig. 16). Meanwhile, Jakarta books the second biggest 7-yr compounded growth at 16%.
Fig. 15: Distribution of Transport Output Fig. 16: Sub Transport Output Growth (7-yr CAGR; 2010-17)
100% 21% 90% 90% 19% 80% 80% 17% 70% 70% 60% 15% 60% 50% 13% 50% 40% 11% 40% 30% 9% 30% 20% 7% 20% 10% 0% 5% 10% G. Jakarta W. Java C. Java E. Java Sumatera Bali and NT Borneo Sulawesi G. Jakarta W. Java C. Java E. Java Sumatera Bali and NT Borneo Sulawesi
Railway Road Sea Air Others Railway - LHS Road -LHS Sea - LHS Air -RHS
Source: CEIC, IndoPremier Source: CEIC, IndoPremier
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This growth is mainly driven by toll road construction of Bogor Outer Ring Road (BORR) Section IIB, Jakarta Outer Ring Road II (Serpong – Kunciran, Kunciran – Cengkareng, Cinere – Serpong), and Jakarta – Cikampek Elevated Phase II. In fact, all of these projects are owned by JSMR.
In general, we see that the transport output distribution seems to be concentrated on road and air transport-related infrastructure whose respective compounded growth has consistently topped 10%. The government appears to have an awareness of resolving current logistical issue to tamp down the logistical costs that now stands at 23.5% of GDP (Fig. 17), according to Indonesian Logistic Association. The effort of lowering down the logistical share as of GDP, many of which includes the toll road construction, is particularly a real boon for JSMR’s future earnings growth by hitchhiking investment-led fiscal expansion on infrastructure space.
Fig. 17: Indonesia Logistical Share (% of GDP) and Dwelling Time for Sea-borne Transport
Source: Indonesia Logistic and Forwarder Association (ALFI),Mandiri’sGunawan (2009), Ministry of Transport, and Pelindo II
The comparison of nominal and real transportation output gives a similar purpose, as the preceding discussion, of knowing which regions whose nominal growth is driven either demand-pull inflation or cost-push inflation. Despite having a highest nominal growth, West Java and Bali seem to fall within cost-push inflation type where the implied inflation dominates the nominal growth creation. On the other hand, the rest of regions’ nominal output growth is well formed by real demand which characterizes a demand-pull inflation.
Fig. 18: Transport Nominal Output Growth (%, 8-yr CAGR) Fig. 19: Transport Real Output Growth (%, 8-yr CAGR)
18.0% 16.3% 10.0% 15.4% 16.0% 14.5% 9.0% 13.6% 13.7% 13.4% 8.6% 14.0% 8.0% 7.5% 12.0% 7.0% 12.0% 6.6% 6.6% 6.6% 9.8% 6.0% 6.0% 10.0% 5.0% 5.2% 8.0% 4.0% 6.0% 3.0% 3.1% 4.0% 2.0% 2.0% 1.0% 9.4% 7.7% 6.7% 7.1% 6.8% 6.2% 6.8% 8.0% 0.0% 0.0% G. Jakarta W. Java C. Java E. Java Sumatera Bali and NT Borneo Sulawesi G. Jakarta W. Java C. Java E. Java Sumatera Bali and NT Borneo Sulawesi
Region Growth (%) Country Growth (%) Region Growth (%) Country Growth (%) Implied Inflation Rate (%)
Source: CEIC, IndoPremier Source: CEIC, IndoPremier
We believe this analysis is important to understand the nature of toll road business in which the region with demand-pull inflation should be able to shorten the break-even period on hefty toll road investment and exhibit vibrant traffic growth. On the other hand, the region with cost-push inflation should find it otherwise. JSMR has a collection of toll road assets with differing business cycle, ranging from early-staged (in Java region) to matured toll portfolio (in Greater Jakarta).
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The matured toll road assets is well characterized by low future debt-financed capital expenditure and high earnings visibility (i.e. stable revenue stream, low operating, and financial leverage). JSMR is specifically in a great benefit as it owns extensive Jakarta toll road on its book (c. 33% of total concession owned). Though, it has one toll road in Bali whose real demand is relatively weak.
Current infrastructure budget is an implicit new normal rate given the fiscal posture and flattening budget trend
Given current fiscal expansionary stance, many have raised the concern on increasing level of debt as it has been gradually increasing over time (Fig. 20). We believe the government to remain prudent on managing the fiscal spending, current account deficit, and public debt level. We observe several things. First, we witness the flattening trend over the infrastructure budget (Fig. 3) on which we believe this trend to imply a new normal rate of infrastructure spending given current fiscal posture, though there is a possibility that this flattening trend is due to populist policy where social spending takes a precedence over a more productive spending in the political years. We forecast the infrastructure budget (% of GDP) to hover around 2.5%-3% level which is the implicit new normal rate for infrastructure spending. Second, fiscal revenue is recovering upward due to higher tax coverage (Fig. 21) which leads to higher income tax contribution as of total fiscal revenue.
Fig. 20: Hard Infra Spending, Debt, and Deficit (% of GDP) Fig. 21: Fiscal Revenue Profile
20% 50% 35% 0.0% 40% 15% 30% -0.5% 25% 30% -1.0% 25% 25% 10% 20% 23% 24% 20% 21% -1.5% 19% 19% 18% 5% 15% 17% 10% -2.0% 10% 0% 0% 5% -2.5% 2010 2011 2012 2013 2014 2015 2016 2017 2018 0% -3.0% Fiscal Revenue (% of GDP) - LHS 2010 2011 2012 2013 2014 2015 2016 2017 2018 Income Tax (% Revenue) - RHS Hard Infra Spending - LHS Debt - LHS CA Deficit - RHS Tax Coverage (% of Working Population) - RHS
Source: CEIC, IndoPremier Source: CEIC, IndoPremier
Third, we take a close look on the non-financial institution debt holding where short-term debt proportion has been steadily kept low below 20% (Fig. 22; LHS). This should temper down the solvency issue. In terms of the type of debt instruments involved, it has also been more diversified in the sense that is no longer monotonously holdingconventional loans like eight years ago (Fig. 22; RHS).
Fig. 22: Non-FI Debt Holding by Security and Maturity Fig. 23: Debt Issuance by Currency and Creditor’s Domicile
100% 65% 100% 100% 60% 80% 80% 80% 55% 60% 60% 60% 50% 40% 40% 40% 45% 20% 20% 20% 40% 0% 0%
0% 35%
Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18
Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-18
Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18
Jul-13 Jul-18
Jan-11 Jan-16
Jun-11 Jun-16
Oct-14
Apr-12 Apr-17
Sep-12 Feb-13 Sep-17 Feb-18
Dec-13 Dec-18
Aug-10 Aug-15
Nov-11 Nov-16
Mar-10 Mar-15 ST Portion - LHS LT Portion - LHS Loan - RHS May-14
Debt Securities - RHS Other Payables - RHS IDR-denominated Foreign-denominated
Domestic Creditor Foreign Creditor
Source: CEIC, IndoPremier Source: CEIC, IndoPremier
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Over time, the other instruments have emerged such as debt securities and other payables. The outstanding debt portfolio has also become more prudent in the sense that government considers currency denomination for the issued debt securities and the domicile of its creditors (Fig. 23). Moreover, the proportion of public and private debt is now balanced rather than being heavily concentrated on public side (Fig. 24). Another point to highlight is that our current debt level is considered to be relatively normal. Our debt-to-GDP now stands at 29% (vs. the median of investment-grade, BBB-rated countries’ debt-to-GDP at 38%) and still has an ample room for additional shrewd debt assumption. In our opinion, the real challenge lies on how the government manages the fiscal expenditure in effective and efficient manner which had been addressed by institutional reformations with the end product of six government bodies. These bodies set a keen eye on the quality of infrastructure spending. Among these bodies, KPPIP actively coordinate and monitor the acceleration of infrastructure project delivery.
Fig. 24: The Proportion of Public and Private Debt (%) Fig. 25: Debt-to-GDP across Investment-grade Countries
100% 80 90% 70 80% 60 70% 50 60% 40 50% 30 40% 20 30% 10 0 20% 10%
0%
Jul-13 Jul-18
Jan-11 Jan-16
Jun-11 Jun-16
Oct-14
Apr-12 Apr-17
Sep-12 Feb-13 Sep-17 Feb-18
Dec-13 Dec-18
Aug-10 Aug-15
Nov-11 Nov-16
Mar-10 Mar-15 May-14 Debt-to-GDP (%) Median (%) Public Debt Private Debt (Incl. FI and Non-FI)
Source: CEIC, IndoPremier Source: Bloomberg, Fitch Ratings, IndoPremier
KPPIP: The gatekeeper with concurrent means of accelerating infrastructure delivery, decision-making, and project involvement
KPPIP which stands for Committee for Acceleration of Priority Infrastructure Delivery is the associated government body that was mandated by Presidential Regulation No. 75/2014 and No.122/2016 (revision). It consists of six governing members carrying specific job descriptions (Fig. 26), with a general idea of expediting, monitoring, and de-bottlenecking the government priority projects. In detail, KPPIP has mainly five functions:
Developing pre-feasibility study (as known as Outline Business Case or OBC) quality standard Facilitating the preparation of priority projects Monitoring and de-bottlenecking priority projects Determining and implementing strategy and policy for the acceleration of infrastructure delivery Facilitating capacity and institutional establishment related to priority infrastructure delivery
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Fig. 26: KPPIP’s Governing Members and Their Job Outlines
Governing Members Job Outline 1 Coordinating Minister of Economic Affairs - Provides OBC facility for top-down projects - Monitors and de-bottlenecks project on economic issues 2 Coordinating Minister of Maritime Affairs - Oversees and performs de-bottlenecking in energy and transport projects 3 Minister of Finance - Reviews and approves Government support, guarantees, and other fiscal supports - Provides PDF facility for PPP projects 4 Minister of National Development Planning - Assesses and provides OBC facility for bottom-up projects - Developing pre-feasibility standard and quality guidelines 5 Minister of Agrarian and Spatial Planning - De-bottlenecks issues related to land acquisition and support acceleration efforts 6 Minister of Environment and Forestry - Support environmental permit for acceleration process, IPPKH, and land clearing inside forest area *OBC: Outline Business Case, PDF: Project Development Facility, PPP: Public Private Partnership
Source: KPPIP, IndoPremier
The creation of priority projects list has been indispensable to efficiently and effectively manage the expenditure given some explicit and implicit guidelines to meet several economic indicators, such as keeping Current Account Deficit (CAD) below 3% and accommodating a favorable economic condition. Once a proposed project meets the specified criterion set by KPPIP, it is granted a priority in project execution, funding, and other necessary supports. Priority projects are a group of government-mandated projects that collectively fulfill some specified criterion, consisting of three mandatory criterion, namely basic, strategic, and operational criteria (Fig. 27). There is an additional operational criteria puts in consideration on which projects should have a clear project action plan and schedule as well as carrying high investment value with high EIRR (located on upper-most quartile of the line ministries’ project.
Fig. 27: KPPIP’s Criterion for The Inclusion of National Strategic Priority Projects
Criteria for The Inclusion of Line Ministries Projects Basic Criteria - Aligning with National Medium-term Development Plan (RPJMN) and/or Strategic Planning - Aligning with spatial planning - Specially mandated within Presidential or Ministrial Regulation Criteria for The Inclusion of National Strategic Priority Projects Strategic Criteria - Having strategic role for economic development, social welfare, national defense, sovereignty (positively impacting GDP growth, unemployment rate, economic and environment) - Complementing other infrastructure sectors - Enabling project distribution regionally Operational Criteria - New project proposals should have feasibility study - Investment valuation topped Rp100bn (or US$10mn) - Construction must be commenced by latest in 3Q19
Source: KPPIP, IndoPremier
Since the inception of Jokowi administration, the government has two big infrastructure theme which are logistical- and energy-related infrastructure. On logistic space, government eyes for the construction of 24 new seaports, 60 crossing ports, 2,650 km of new roads, 1,000 km of new toll roads, 2,159 km of inter-urban railways, 1,099 km urban railways, 29 Bus Rapid Transit, MRTs in 6 metropolitan and 17 large cities, and rehabilitating 46,770 km of existing roads. On energy space, government targets to develop 35 GW of power plant, 33 new dams, 30 hydropower plants, and new oil refineries of 600,000 barrels. But then, this ambitious projects were selected into 223 Priority Projects and 3 special program with the estimated value of US$307bn.
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Fig. 28: Venn Diagram of Government Project Priority Level Fig. 29: Selected 223 PSNs and 3 Programs valued at $307bn
Source: KPPIP, IndoPremier Source: KPPIP, IndoPremier
As of June 2018, KPPIP estimated to have completed 32 PSNs with investment value of Rp96tn which comprises of the completion of 20 PSNs in FY16, 10 PSNs in FY17, 2 PSNs in FY18 that represent many project sectors, such as airport, dam, electricity generator, railway, and toll roads. KPPIP later gave a guidance of the completion of another 66 PSNs and partial operation of 93 PSNs and 2 special programs by 3Q19 (Fig. 30). From outstanding PSN list stipulated in Coordinating Minister of Economic Affairs Regulation (2017), KPPIP had also selected 37 Priority Projects with total investment of US$181bn of which toll road sector takes significant proportion of 11% or equivalent to US$20bn (Fig. 31) which consists of Balikpapan – Samarinda, Manado – Bitung, Panimbang – Serang, 15 segment of Trans Sumatera, Probolinggo – Banyuwangi, Yogyakarta – Bawen toll road construction. These toll road projects are mostly owned by JSMR.
Fig. 30: 66 PSNs completed, 93 PSNs open partially in 3Q19 Fig. 31: Proportion of Priority Project
Source: KPPIP, IndoPremier Source: KPPIP, IndoPremier
In terms of project execution, KPPIP gives its analysis of which three dominating issues are project funding, land acquisition, planning and preparation from time to time (Fig. 32, 33). These issues are addressed by the government through stipulating fiscal, institutional, and regulatory reforms. Fiscal reform is dedicated to deal with funding and land acquisition issues while both of institutional and regulatory reforms aims to resolve permit, planning, and preparation issue.
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Fig. 32: Issues Found in PSN Delivery as of December 2017 Fig. 33: Issues Found in PSN Delivery as of June 2018
Source: KPPIP, IndoPremier Source: KPPIP, IndoPremier
Fig. 34: Government initiated fiscal, institutional, and regulatory reform for infra acceleration
Fiscal Reform Instruments or Bodies Description 1 Viability Gap Funding (VGF) Government funding contribution up to 49% of construction cost 2 Availability Payment (AP) Annuity payment by government during concession period as operation commences 3 Land Revolving Fund Revolving fund to accelerate land acquisition 4 Risk-sharing Guidelines IIGF issues risk allocation and mitigation for PPP projects 5 Tax Holiday 100% tax holiday for 17 pioneering industries within 5 - 20 years, contingent to investment value Institutional Reform 1 KPPIP Actively involved in accelerating delivery of priority infrastructure projects 2 Sarana Multi Infrastruktur Infrastructure funding company, merger of SMI and Government Investment Center (PIP) 3 Indo Infra Finance (IIF) Providing capital for infrastructure development, supporting preparation, and PPP transactions 4 PPP Unit Facilitating the preparation of PPP projects 5 BLU LMAN Providing land fund for PSN to ensure timely land acquisition process 6 Indo Infra Guarantee Fund (IIGF) Providing project guarantee for non-PPP projects Regulatory Reform 1 Direct Lending Accelerating financial close by guaranteeing direct lending to SOE 2 Land Acquisition Law enforcement for land acquistion acceleration and acquisition fee payment for community 3 Economy Package Deregulation for issues that hinder infrastructure delivery Source: KPPIP, IndoPremier
Fiscal Reform – Alternative funding is a product of fiscal reform to solve project’s financial viability issues
Government endeavors to tackle with the funding issue hampering the infrastructure delivery has resulted to some alternative products which act as a sweetener to attract private investors to participate in Public Private Partnership. This can also be seen as an effort to diversify the debt holding (Fig. 22). Fiscal reform hatched out six instruments(Fig. 35) used to increase project’s financial feasibility, namely Project Development Facility (PDF), Viability Gap Funding (VGF), Guarantee Scheme, Tax Facilities, Availability Payment (AP), and Land Bridging Fund. These alternative funding (Fig. 36) gained popularity as its portion as of total infrastructure budget increased dramatically to 10% in FY18 (vs. 3% in FY14; the time when KPPIP was formed). We describe each of alternative funding in details.
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Fig. 35: The Product of Fiscal Reform Fig. 36: Alternative Funding (as of % Infra Budget) spiked
40 10% 35 8% 30 25 6% 20 15 4% 10 2% 5 0 0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
VGF Village Fund - Special Infra Funds Government Investment for Infrastructure National Land Agency Fund Total (% of Infra Budget) - RHS
Source: KPPIP, Indo Premier Source: CEIC, Indo Premier
Viability Gap Funding – Government capital contribution to partially finance the construction
Viability Gap Funding (VGF) is government funding facility for construction of PPP projects as a way to increase projects’ financial viability within the bidding process, with Ministry of Finance acting as the managing entity. Once a project gains approval from Ministry of Finance for pertaining funding, the government is allowed to inject up to 49% of total project’s construction costs.
There are several projects that had been granted with this funding scheme, namely Umbulan water supply project in 2016, Lampung water supply project in 2018, and several toll road projects in the form of partial construction funding. The list of toll road project equipped with VGF funding are as follows:
Ngawi – Kertosono (JSMR) Solo – Ngawi (JSMR) Semarang – Solo (JSMR) Balikpapan – Samarinda (JSMR) Manado – Bitung (JSMR) Medan – Kuala Namu – Tb. Tinggi (JSMR) Cileunyi – Sumedang – Dawuan (CMNP) TebingTinggi – Parapat (HutamaKarya) Serang – Panimbang (WIKA)
We believe this instrument is pivotal for SOE toll road operators to better manage its cash flow and relieve the leverage issue in the early concession period. SOE contractors are also benefited from this alternative funding since the construction of toll road is a hefty, turnkey- based project that casts a negative effect on SOE contractors’ cash flows.
Availability Payment – Investment sweetener in non-financially feasible projects
Availability Payment is a scheme in which the concessionaires (investors) receive annuity payments (series of cash inflows) from central or regional government with the premise of fulfilled service standard. This type of funding disbursement is supervised by Ministry of Finance and Ministry of Home Affairs. This funding creation enables private parties to participate in non-financially feasible PPP projects, especially those in ex-Java toll road projects withdemand risks (i.e. volatile and possible low traffic). At the same time, local government is indirectly engaged by disbursing the funds toward the project and the instrument renders an interesting return on investment for private parties. This injected capital can also be used to undertake additional leverage to fulfill the required investment costs.
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Fig. 37: AP offers stable cash inflows for private investor in financially unattractive project
Source: KPPIP, IndoPremier
Tax Holiday – Exemption for 5 – 20 years; beyond the toll road break-even period
Based on Ministry of Finance regulation No.35/2018, government introduced a tax exemption scheme to attract private participation. The tax holiday is given in a range of 10% - 100% within specified period, which is conditional upon investment value. At the expiration, there will be a two-year transition period in which the income tax is discounted as much as 50%.
Investment Amount (Rpbn) Period of Obtaining 100% Tax Holiday
500 up to 1,000 5 years
1,000 up to 5,000 7 years
5,000 up to 15,000 10 years
15,000 up to 30,000 15 years
above 30,000 20 years
There are 16 industries eligible for tax holiday, such as upstream base metal, oil and gas refinery, petrochemical (oil-, gas-, and coal-based), non-organic and organic base chemical, pharmaceutical materials, semiconductor, communication and medical device components, industry manufacturing machine, component manufacturing (robotic, ship, airplane, and train), and power plants. In addition, PPP-based economic infrastructure is also granted the tax holiday, which includes toll road projects. This could create an incentive for private players to invest in toll road business as we observe the toll road investment, in general, needs five- year time to deliver positive earnings and cash flows. This tax exemption period is well beyond the toll road break-even period. Thus, the benefit associated with this tax incentive should increase private investors’ appetite to invest in toll road business.
Land Revolving Funds – Expediting land acquisition is essential for toll road projects
Land revolving funds are another construction-expediting instrument allowing government to assist the payment of land acquisition, especially with the project that involves private sector. The managing entity includes Ministry of Finance, Ministry of Agrarian and Land Spatial or BPN, and BLU-LMAN. There are two schemes of Land Funding which are direct payment and bridging fund scheme. The scheme is not booked as government debt since LMAN will reimburse the bridging fund as soon as the state budget spending allocation is ready to be disbursed and the related reimbursement documents are ready. KPPIP indicated that government had disbursed US$6.2bn worth of fund between 2016 and 2018.
KPPIP previously indicated that land acquisition is one of major problem which makes up for 36% out of 327 reported issue in infrastructure delivery (Fig. 33). In toll road sector, land acquisition process can take almost two to three years to resolve which puts a disadvantage to toll road operators with limited concession period on its assets. Thus, government created new regulation to put a framework on land acquisition process in which there are four stages (planning, preparation, execution, and hand-over).
This process is expected to bring down the acquisition process to 238 days (Fig. 38). Additionally, land capping was introduced in which investors are only responsible for paying
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land acquisition fee no more than what had been estimated beforehand. If the budget realization comes above than estimation, the difference will be paid by government (Fig. 39). This rises predictability on investment amount; a concern that gravitates toward private investors.
Fig. 38: Land Acquisition Timeline Fig. 39: Land Capping and Revolving Fund Scheme
Source: JSMR, IndoPremier Source: JSMR, IndoPremier
Project Development Facility – Complementing tool to untangle bureaucratic issue
In addition to funding support, government offers a project development facility to boost private sector participation in various stage of infrastructure preparation phase. Among many things, KPPIP plays a role for advising private investors, appointing investors to infrastructure funding company (IIF, SMI, and IIGF), and supporting the administration of project tender submission (OBC and FBC). As for toll road sector, PDF untangles lengthy bureaucratic process and help private investors to have clearer guidance on toll road investment. This, in turn, makes toll road operators easier to find prospective investors who would like to have direct or indirect exposure on this sector. It thus helps the toll road operators for divesting the assets and gaining the fresh funds for future expansion thereof.
Fig. 40: KPPIP mostly helps with preparation process Fig. 41: OBC – Decision Making for Funding Activity
Source: KPPIP, IndoPremier Source: KPPIP, IndoPremier
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Industrial Overview
Introduction to Toll Road Industry
Toll road is a unique business where the government—through the governing body as known as Indonesian Toll Road Authority (BUJT) —exerts considerable amount of control to regulate, monitor, and grant a limited contractual operation right on specific toll road asset to operators. The monitoring function is to make sure that quality standard delivery is met unless the government is rightfully able to revoke the right from the operator. The regulating function enables the government to veto tariff increase proposal and enforces the law. The party who owns an operating right is knows as concessionaire and this right has a duration termed concession period.
Given this nature of business, toll road asset is reasonably akin to the hybrid of equity and fixed income instrument. Toll road asset shares a fixed income attribute in the sense that both of them have contractual cash flows. The asset also has the trait of equity instrument as the cash flow streams tend to fluctuate in the beginning period. Over time, cash flow streams gradually become more stable as the asset enters the mature growth stage.
Only after reaching this stage, many market participants consider the toll road asset to be a fixed income alike instrument in which the asset tends to be securitized that enables the toll road operators to obtain fresh funds which are mostly used to build new toll roads. This so- called asset securitization is a missing link of achieving sustainable toll road development in the years to come. We discuss the securitization later on the subsequent sections.
Fig. 42: The Steps of Acquiring Toll Road Concession
Source: BPJT, IndoPremier
We turn back into the step to acquire a concession (Fig. 42). It starts with defining whether the proposed toll road project is government-mandated (solicited) or private initiative (unsolicited) program. For an unsolicited program, the concessionaire should submit a proposal. If the proposal is being granted, all unsolicited and solicited projects are booked into the national toll road blue print which are afterward being sub-categorized into a group of toll road section.
Fig. 43: Toll Road Concession Type Fig. 44: The pathway to get the concession agreement (PPJT)
Source: BPJT, IndoPremier Source: BPJT, IndoPremier Refer to Important disclosures in the last page of this report 16
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The concessionaire begins the land acquisition process and willlater be granted a concession agreement (PPJT) as the acquisition process completes. This process could take up to 20 months (Fig. 44). In the document of PPJT agreement, it also includes the determination of toll road tariff to ensure investment clarity for investors beforehand. Post acquiring agreement, the project owner seeks a financing, conducts a technical planning, and undergoes a construction. The obligation to acquire a land and construct a toll road is contingent on the type of agreement that consists of four types (Fig. 43).
First type is Build-Operate-Transfer (BOT). Under this type of agreement, the toll road operators assume an obligation of both acquiring the land and constructing the toll road, as well as operating and maintain the asset. Second type is Hybrid BOT on which the concessionaire undertakes toll road construction, operation, and maintenance. The third type is O&M where concessionaire is solely responsible of operating and maintaining the asset. The fourth type is solicited-based toll road project within which the government appoints SOE to assume all obligation as the BOT holder. Upon the completion of these three processes, the concessionaire will be granted an operating right on the toll road.
Fig. 45: Porter’s Five Forces on IndonesianToll Road Industry Fig. 46: BCG Matrix of IndonesianToll Road Industry
Bargaining Power of Supplier 5 10% 4 JSMR IJ
3 META IJ
2 Bargaining Power of Degree of Competition 5% Buyer 1 CMNP IJ 0 0% -15% 5% 25% 45% 65% 85%
Market Market Growth (%) Rate -5%
Thread of Subtitute Thread of New Entrants Products -10% Relative Market Share (%)
Source: IndoPremier Source:IndoPremier
We next present the analysis of company’s competitiveness in the industry by using Porter’s Five Forces (Fig. 45) and BCG Matrix (Fig. 46). Porter’s Five Forces gives us a brief description on whether the company has low or high level of bargaining power toward its supplier and buyer, the industry competition, thread of substitute products, and new entrant. The BCG matrix conveys whether the company is in either the cash-generating cycle or demand- generating cycle.
The Porter’s Five Forces Analysis
Bargaining Power of Supplier – Modestly Low (Score: 2)
The purchase of input is heavily spent on the construction phase where there are two big inputs which are land and construction services. We believe the bargaining power of supplier toward company is modestly low explained by several reasons. First, the land acquisition on toll road project, as mandated by governing regulations across ministries, is mainly the government responsibility where the land is valued by third-party, independent appraisal allowing a fair valuation. In addition, the land capping scheme— as mentioned earlier (Fig. 39) — prevents the investors (project owners) to pay more-than-estimated land acquisition fees.
Second, JSMR has its own construction service although it still relies on SOE contractors for many toll road construction works. We believe construction costs are well under the government radar as toll road sector is strategic to national infrastructure development. One way is to keep a keen eye on profit margin of toll road construction works to ensure project’s financial feasibility.
Our model suggests that JSMR’s construction business caters c. 0.6% - 1.3% gross profit margin in the last five years. We believe the other SOEs players to operate within similar low margins. This level of gross margin should tell that JSMR enjoys a low bargaining power of supplier. In addition, JSMR construction costs averaged about Rp156bn/km which is lower
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than its peers (vs. META: Rp165bn/km, JRPT: Rp637bn/km, Waskita Toll Road: Rp193bn/km). This lower-than-peers construction figure emphasizes low bargaining power of suppliers.
Another important input within the construction phase is source of financing as the toll road construction requires huge investment. JSMR has been able to get favorable rate on its loan. It could secure a financing with implicit ceiling rate on its loan of 8.5% and 10.5% at parent- and subsidiary-level, respectively. The introduction of contractor pre-financing (CPF) augments JSMR bargaining power to capital provider at the expense of SOE contractors’ cash flows.
Under the CPF scheme, JSMR pays allconstruction costs to contractors only after the construction process is completed.This scheme provides a platform for JSMR to better time the investment cash outflow. JSMR has seven projects utilizing the CPF scheme: Semarang- Batang, Cengkareng - Kunciran, Kunciran - Serpong, Balikpapan - Samarinda, elevated Jakarta - Cikampek II, Serpong - Cinere, Manado – Bitung, and Bogor Outer Ring Road (BORR).
Bargaining Power of Buyer – Low (Score: 1)
Toll road is utility for logistic activity and people’s mobility. This situation creates a low buyer switching costs (i.e. less alternative product) which should translate to inelastic demand. We noted that government has a power of exercising a price control which could produce a price risk (tariff hike cancellation). However, we observe that JSMR has never been exposed to such risk as suggested by increasing tariff inflation trend on its Jakarta’s inner toll roads (JIRR and JORR; Fig. 47) and inter-province toll roads (Fig. 48).
The overall picture on tariff inflation trend tracks the respective regional inflation reasonably well. The trend on JSMR’s Jakarta toll roads’ tariff sees no negative growth. On the rare occasion, JSMR’s intercity toll roads’ traffic shows that tariff deflationary seems negligible as it could lever the tariff back upward. We talk this aspect in later sub sections. With this demand nature, toll road operator should enjoy high profitability margin in its normal course of business.
Fig. 47: The Tariff Dynamic of Cawang – Pluit (JIRR) and JORR Fig. 48: The Tariff Dynamic of Inter-Province Toll Road
25% 20% 18% 20% 16% 14% 15% 12% 10% 10% 8% 6% 5% 4% 2%
0% 0%
3Q13 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19
4Q14 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 Padaleunyi (4-q rolling, yoy) Cipularang (4-q rolling, yoy) JIRR (4-q rolling, yoy) JORR (4-q rolling, yoy) W. Java RCPI (12-m rolling, yoy) Jakarta RCPI (12-m rolling, yoy)
Source:CEIC, JSMR,IndoPremier Source:CEIC, JSMR,IndoPremier
Thread of New Entrants and Degree of Competition – Low (Score: 1)
The nature of toll road business has a high capital expenditure and the break-even period varies between toll road projects which are contingent to many factors. As such, we believe there are little players who would like to commit to such business environment. However, recently, there are several domestic private players (PT Astratel Nusantara, Sinarmas, and etc.) and foreign players engaged in toll road business by having minority stake on several toll roads. One of the aggressive domestic private player who seeks an exposure in toll road business is Astratel Nusantara (subsidiary of Astra International) who now owns stake on six toll road sections with total length of 349km across Java regions.
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Fig. 49: Astratel Nusantara owns 349km minority and majority concession across Java regions
Region Length (km) Stake (%) Tangerang - Merak Banten 72 79.3 Kunciran - Serpong G. Jakarta 11 40.0 Cikopo - Palimanan (Cipali) W. Java 116 45.0 Semarang - Solo C. Java 73 40.0 Jombang - Mojokerto E. Java 41 44.5 Surabaya - Mojokerto E. Java 36 44.5 Total 349
Source: Astratel Nusantara, BisnisIndonesia, Kontan, IndoPremier
The important thing to know is that the competition landscape on toll road industry is totally different with other industries. First, new players in the sector could bring a good effect to incumbent players (like JSMR or SOE contractors) in whichthe owner could get a fresh fund (from selling the ownership) to finance other toll road constructions and thus hinder them from taking additional debts. Second, the real demand growth (i.e. traffic growth) partly stems from the road interconnectivity. The more players participate in this industry, the more toll road construction. This should boost traffic growth for many newly-built and the matured toll roads. The corresponding industry competition is nearly non-existence.
Product Substitution – Modestly Low (Score: 2)
Non-toll road is basically the substitute of toll roadservice for commercial logistics. This threat of product substitute should also be modestly low given the following statistics. First, the road coverage gives us a sense how well our road infrastructure is (Fig. 50).
Fig. 50: Road Coverage and Its Growth across Islands Fig. 51: Vehicle Density (Vehicle-to-Road Length Ratio)
700 6% 140% 604 600 5% 120% 500 100% 4% 400 80% 3% 300 60% 2% 205 174 40% 200 152 121 1% 20% 100 31 43
0% 0% 0 Sumatera W. Java C. Java E. Java Bali Borneo Sulawesi Eastern Indonesia Sumatera Java Bali and NT Borneo Sulawesi Papua Maluku Indo Vehicle-to-Road Length Road Coverage Road Growth (%, 7-yr CAGR)
Source: CEIC, IndoPremier Source: CEIC, IndoPremier
In Java, most of regions score high in terms of its road coverage that is above 90% though the road construction growth is relatively subdued. This region should see more threat of product substitution. The road coverage is particularly low in Borneo, Eastern Indonesia, Sulawesi, Sumatera, and nation-wide which came below 40%. These regions are mostly under-developed in road infrastructure and should bring a growth catalyst for major toll road operators in the foreseeable future. Second, we present vehicle density that measure the ratio between vehicle and road length which suggests how congested the traffics are in the respective regions. The ratio is considerably high in Java which should refute the idea of high risk of product substitution (i.e. passengers using non-toll routes) due to severe traffics in most roads. In terms of commercial logistical activity, toll road proves to be the only preferred access by many heavy trucks transporting goods.
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The alternative means of transport, like air-borne and railway, should be the key product substitutes for commercial passenger car users. In this aspect, we also believe the thread should be modestly low as supported by the air (Fig. 52) and train (Fig. 53) fares statistics. We calculate the tariff for the trip across Java cities only as JSMR virtually derives its traffic from Java region (c. 96% in 1Q19).
Fig. 52: Tariff Range of Airplane ticket (one-way, per person) Fig. 53: Tariff Range of Railway ticket (one-way, per person)
900 830 4,000 3,699 800 3,500 3,257 700 650 603 615 600 3,000 2,744 640 2,420 600 525 2,500 2,035 500 1,932 1,912 1,804 435 425 2,000 400 405 400 1,340 1,425 350 1,500 1,119 1,140 300 370 330 767 815 851 278 1,000 200 253 225 220 350 100 500 - 63 - - - - - Bandung Cirebon Malang Semarang Surabaya Yogyakarta Solo Bandung Cirebon Malang Semarang Surabaya Yogyakarta Solo Economy Business Executive Economy Premium Economy Business
Source: Traveloka, Tiket.com, IndoPremier Source:Traveloka, Tiket.com, IndoPremier
Air fares (Fig. 52) vary from Rp350k to Rp3.6mn (per person) and train fares (Fig. 53) range from Rp63k to Rp830k (per person) for one-way trip on which the variation is contingent to whether it is a short-haul or long-haul trip. Meanwhile, toll road tariff (Fig. 54) hovers around Rp52k to Rp727k (per passenger car unit or hereinafter PCU); this figures could be lower if a PCU carries five up to seven people. These data show that overall potential product substitute for JSMR should be modestly low.
Fig. 54: Toll Road Tariff across Java Cities
Source: Kompas.com, Ministry of Public Works, IndoPremier
We briefly discuss the company positioning relative to its public-listed peers in terms of their growth and market share. BCG matrix represents this idea. In the prior figure (Fig. 46), JSMR holds both high market share and growth than Citra Marga Nusaphala (CMNP) and Nusantara Infrastructure (META). JSMR’s high market share stems from the fact that it owns extensive majority ownership over Trans Java toll roads. They, in fact, own 80% traffic volume over domestic operating toll road. The market growth is due to the fact that JSMR has seen massive expansion cycle(demand-generating cycle) for the last three years while CMNP and META lags behind in expanding their toll road portfolio — so does their future earnings growth prospect — as the toll road construction nearby their toll road has been owned or in construction progress by JSMR. Both Porter’s Five Forces and BCG Matrix analysis favor JSMR relative to its peers.
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We subsequently discuss the explanatory variable to real demand growth of JSMR (i.e. traffic growth). We purport four-wheeler (4W) vehicle growth to be one of the variable. Overall 4W car sales have performed well. It is worth noting that these commercial and passenger car sales figures are rather reflecting the supply of cars available in public, which is known as whole sales car figure. This measure, however, could tell the market appetite for cars consumption.
Fig. 55: Commercial Car Sales (12-m rolling, in ‘000 unit) Fig. 56: Commercial Car Sales Mix (%)
100% 400 90% 80% 80%
300 60% 70% 60% 40% 50% 200 20% 40%
0% 30% 100 20% -20% 10%
0 -40% 0%
Jul-11 Jul-16
Jan-09 Jan-14
Jul-12 Jul-17
Jun-09 Jun-14
Oct-12 Oct-17
Apr-10 Apr-15
Sep-10 Feb-11 Sep-15 Feb-16
Dec-11 Dec-16
Aug-13 Aug-18
Jan-10 Jan-15
Nov-09 Nov-14
Jun-10 Jun-15
Mar-13 Mar-18
Oct-13 Oct-18
Apr-11 Apr-16
Feb-17 Sep-11 Feb-12 Sep-16
May-12 May-17
Dec-12 Dec-17
Aug-14
Nov-10 Nov-15
Mar-14
May-13 May-18
Double Cabin Truck Bus Growth (%, 12-m rolling) Double Cabin Truck Bus
Source: CEIC, IndoPremier Source: CEIC, IndoPremier
In commercial car space (Fig. 55), it delivers a 9-yr compounded growth of 9.3%. In terms of sales mix, truck sales dominate the commercial car sales (Fig. 56) at 93%, double-cabin and bus respectively form 6% and 1% of total unit car sales. In passenger car space (Fig. 57), it caters a slightly higher growth relative to commercial counterpart at 9-yr compounded growth of 10.3%. In terms of sales mix, Multi-Purposed Vehicle (MPV) and Low-Cost Green Car (LCGC) dominate the passenger sales formation at 73% and 25%, respectively. Both of Sedan and sport cars only account for 1% of total unit cars sold.
Fig. 57: Passenger Car Sales (12-m rolling, in ‘000 unit) Fig. 58: Passenger Car Sales Mix (%)
100% 1000 60% 90% 80% 800 40% 70% 60% 600 20% 50% 40% 400 0% 30% 20% 200 -20% 10% 0%
0 -40%
Jul-11 Jul-16
Jan-09 Jan-14
Jun-09 Jun-14
Oct-12 Oct-17
Apr-10 Apr-15
Sep-10 Feb-11 Sep-15 Feb-16
Dec-11 Dec-16
Aug-13 Aug-18
Nov-09 Nov-14
Mar-13 Mar-18
May-12 May-17
Jul-12 Jul-17
Jan-10 Jan-15
Jun-15 Jun-10
Oct-13 Oct-18
Apr-11 Apr-16
Sep-11 Feb-12 Sep-16 Feb-17
Dec-12 Dec-17
Aug-14
Nov-10 Nov-15
Mar-14
May-13 May-18 LCGC Car Sport Car MPV Sedan LCGC Car Sport Car MPV Sedan Growth (%, 12-m rolling)
Source: CEIC, IndoPremier Source: CEIC, IndoPremier
The direct indicator of car sales demand contains within the retail car sales figure (Fig. 59) where we also measure the discrepancy between wholesale- and retail-level car sales for passenger and commercial cars (Fig 59; line graph – RHS) in which we term it as inventory. The trend over the inventory measure diverges where we can see the passenger car category experiences under-supply state where commercial car category finds the otherwise. We can imply that the demand of passenger car remains intact. This is another positive sentiment for JSMR as its traffic composition is mainly driven by Group I category which comprises of a group of passenger car.
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JSMR Re-initiating coverage
Fig. 59: Retail Sales(‘000 units) and Inventory Level of 4W Fig. 60: Proportion of Retail-level Car Sales
1,400 25 100% 20 1,200 90% 15 1,000 80% 10 70% 800 5 60% 600 0 50% -5 400 40% 80% 73% 78% 76% -10 71% 68% 69% 71% 72% 30% 200 -15 20% 0 -20 10% 2010 2011 2012 2013 2014 2015 2016 2017 2018 0% Passanger Commercial 2010 2011 2012 2013 2014 2015 2016 2017 2018
Passanger Inventory Commercial Inventory Passanger Commercial
Source: CEIC,Gaikindo,IndoPremier Source: CEIC, IndoPremier
In terms of retail-level sales mix, it is also dominated by passenger car. We additionally exhibit the sales mix comparison for passenger car at both wholesale- (Fig. 61) and retail- level (Fig. 62) where it is nearly similar in terms of sales mix. The two most preferred categories are MPV (4 x 2 Type) and LCGC type. In sum, the statistics on car sales (both at whole- and retail-level) shows that thedemand remain healthy. The case of traffic decline in non-toll and toll road should be less likely to happen which is a good demand prospect for toll road business.
Fig. 61: Wholesale-level Passenger Car Sales Mix in FY18 Fig. 62: Retail-level Passenger Car Sales Mix in FY18
Source: CEIC, IndoPremier Source: CEIC, IndoPremier
Fig. 63: Commercial and Passenger Car Sales Growth vs. JSMR Traffic (% yoy, 12-m rolling)
75%
55%
35%
15%
-5%
Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 -25%
Commercial Car Growth Passanger Car Growth JSMR Traffic Volume
Source: CEIC, JSMR, IndoPremier
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JSMR Re-initiating coverage
Afterwards, we see the correlation between car sales and JSMR traffic growth to better understand the company’s demand driver. We superimpose the car sales growth for commercial and passenger category with JSMR traffic growth (Fig. 63). We roll all corresponding historical monthly data (12-m rolling) to nullify the seasonality effects.
We calculate the correlation between4W (both commercial and passenger) car sales yearly growth and JSMR traffic growth over the last eight years with monthly data frequency where passenger car sales growth has a higher correlation than commercial car sales growth. The correlation of passenger car sales and JSMR traffic growth is 35% while the correlation of commercial car sales and JSMR traffic growth is 30%. This finding should tell us that the passenger car sales growth should have a decent capability to explain the dynamics of JSMR traffic growth. Though, we infer that the underlying demand growth of JSMR traffic should be driven by toll road interconnectivity rather than car sales alone. We will describe JSMR toll road characteristic in great detail in the following section.
Company Profile
SOE Toll Operators with extensive, innately non-cyclical,lucrative toll road assets.
Jasa Marga (JSMR) was founded in 1978 as state-owned toll road operator (70% stake held by government) with main business of providing toll road service, maintaining toll road and managing the complementary business (property business at rest areas). It has been considered as the industry leader for more than 40 years. It now owns 33 toll road concessions (operating 1,527 km roads) and 80% of market share. Company also enjoys holding the longest concession periodin Asia (Fig. 66) for most of its toll road assetswhich should reflect a stability over JSMR’s future revenue streams.
Fig. 64: Jasa Marga’s Milestone
Source: JSMR, IndoPremier
Fig. 65: JSMR owns 13 assets at parent-level & 25 subsidiaries Fig. 66: It holds long concession period – The Longest in Asia
Source: JSMR, IndoPremier Source: JSMR, IndoPremier
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JSMR Re-initiating coverage
The company’s presence on national toll road industry is very extensive. At parent-level, it runs 13 toll road assets expanding across regions and islands. Most of these assets, especially those operate in Greater Jakarta area, have entered the maturity business stage and significantly contribute to company’s revenue. One of these assets, Jakarta-Bogor-Ciawi (Jagorawi) toll road), had been securitized and demonstrated company’s power to raise funds solely from its asset. At subsidiary-level, JSMR manages 20 toll road assets. In contrast to the stable earnings attribute demonstrated at parent-level, many of these assets are on the early- to developing-stage of the business cycle.
These assets, however, are the keystone of future revenue growth by a means of augmenting toll road interconnection between existing toll roads with the new ones. Despite of its subordinated asset quality, the toll roads on subsidiary-level has shown its marketability aspects by being the host of providing toll road assets for recent creative financing. In July 2018, JSMR successfully launched closed-end funds (RDPT; see appendix 1) with the underlying assets of Solo-Ngawi, Ngawi-Kertosono, and Semarang-Batang toll road. It recently completed its quasi-equity financing, D-INFRA (see appendix 2), with the underlying asset of Gempol - Pandaan in April 2019. All of these underlying assets are booked at subsidiary-level. Next, we would like to delineate JSMR’s toll road assets by clustering them based on the region to better understand the asset characteristic whose demand could be affected by the location they operate.
Greater Jakarta Region – High earnings visibility, matured assets collection
The concession ownership of JSMR includes 11 toll roads in Greater Jakarta in which three of them (Cengkareng - Kunciran, Elevated Jakarta - Cikampek, and Jakarta - South Cikampek) are under the construction phase (see Appendix 1 for the timeline on project completion). In the figure (Fig. 67), JSMR operates a total of 270 km fully- and partially-operated toll road in Greater Jakarta which covers about 64% of total operating toll road in Greater Jakarta.
Fig. 67: JSMR’s Toll (Blue Line) with Nearby Infra Facilities. Fig. 68: Jakarta’s Airport Traffic and Its Share (%)
60 58
50 56
40 54
30 52
20 50
10 48
- 46
Jul-11 Jul-16
Jan-09 Jan-14
Jun-09 Jun-14
Oct-12 Oct-17
Apr-10 Apr-15
Feb-16 Sep-10 Feb-11 Sep-15
Dec-11 Dec-16
Aug-13 Aug-18
Nov-09 Nov-14
Mar-13 Mar-18
May-12 May-17
Jakarta Airport Traffic (mn passenger) Traffic Share (%) - RHS
Source: JSMR,IndoPremier Source: CEIC, IndoPremier
In the vicinity of JSMR-owned toll road, there are major transportation hubs (both airports and seaports) facilities as well as industrial estates (Bekasi Fajar and Megalopolis Manunggal). We next lay out the statistics on the traffic for each of supporting transportation hub nearby JSMR’s toll roads. The statistics on Jakarta Airport’s passenger traffic shows a steady increase with the traffic share topped 50% (Fig. 68). The traffic growth on air passenger (Fig. 69) and cargo (Fig. 70) have also exhibited a good pace. This should positively affect JSMR’s airport toll road (Prof. Dr. Ir. Sedyatmo section), cetaris paribus.
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JSMR Re-initiating coverage
Fig. 69: Air Traffic Share & Growth (vs. National, 9-yr CAGR) Fig. 70: Air Cargo Share & Growth (vs. National, 9-yr CAGR)
25% 24% 25% 24% 55% 55% 50% 50% 20% 45% 20% 40% 15% 35% 15% 30% 10% 25% 10% 20%
5% 4% 15% 5% 10% 8% 0% 5% 2% 2% 0% 0% Halim Kusuma Soekarno Hatta Halim Kusuma Soekarno Hatta Traffic Share (%) - LHS National Growth (%, 9-yr CAGR; 2008-2017) Traffic Share (%) - LHS National Growth (%, 9-yr CAGR; 2008-2017) Growth (%, 9-yr CAGR; 2008-2017) Growth (%, 9-yr CAGR; 2008-2017)
Source: CEIC, IndoPremier Source: CEIC, IndoPremier
In the case of sea-born transports, the traffic growth on both ship cargo and commercial ship volume catered a good performance though the growth contraction is witnessed in Sunda Kelapa port. The growth of Tj. Priok port is also known to register below national average for commercial ship volume. Fortunately, the toll roads —operating close to Sunda Kelapa and Tj. Priok port —are owned by Citra Marga (CMNP) and thus JSMR’s traffic should remain unaffected.
Fig. 71: Ship Cargo Share & Growth (vs. National, 9-yr CAGR) Fig. 72: Ship Vol. Share & Growth (vs. National, 9-yr CAGR)
10.2% 10% 9.4% 10.0% 4% 9% 7% 2% 6.83% 8.0% 8% 0% 7% 6.0% -1% 5% -2% 6% -4% 5% 4.0% 3% 4% -6% 2.0% -7% 3% -8% 1.9% 0.5% 2% 1% 0.0% -10% 1% -0.03% Sunda Kelapa Tj. Priok 0% -1% Traffic Share (%) - LHS Sunda Kelapa Tj. Priok National Growth (%, 9-yr CAGR; 2008-2017) Traffic Share (%) - LHS National Growth (%, 9-yr CAGR; 2008-2017) Growth (%, 9-yr CAGR; 2008-2017) Growth (%, 9-yr CAGR; 2008-2017)
Source: CEIC, IndoPremier Source: CEIC, IndoPremier
The overall JSMR’s toll road traffic performance has trended upward though it witnessed a declining trend in 3Q17 (Fig. 73). The cause for this downward trend is driven by its Greater Jakarta which constitutes c.73% of total traffic in 1Q19 (Fig. 74). This seems to give a contrasting impression of matured toll road asset in Greater Jakarta that offers stable and increasing growth on its traffic in which we believe those traffic growth attributes happen when all factors held constant. This assumption is on absence in recent years due to the migration of JSMR’s payment system from closed-system to opened-system. The general idea behind this move is to de-bottleneck the traffic congestion that is caused by toll gate misplacement that had occurred for long time ago. Under the opened-system, the toll road users will only require to pay once at the exit toll gate, instead of paying twice in the middle and exit toll gate. This increases both traffic and operating expenses efficiencies.
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JSMR Re-initiating coverage
Fig. 73: JSMR’s Traffic Volume (12-m rolling, in PCUm) Fig. 74: Traffic Volume Proportion by Regions
100% 350 1,500 1,400 300 1,300 80% 250 1,200 1,100 200 60% 1,000 150 900 40% 100 800 700 50 600 20% - 500
0%
Apr-10 Apr-09 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Apr-18
Dec-15 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-16 Dec-17 Dec-18
Aug-09 Aug-10 Aug-11 Aug-12 Aug-13 Aug-14 Aug-15 Aug-16 Aug-17 Aug-18
Java ex-Jakarta - LHS Ex-Java - LHS G. Jakarta - RHS Total - RHS
Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Apr-18
Dec-12 Dec-18 Dec-08 Dec-09 Dec-10 Dec-11 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17
Aug-10 Aug-11 Aug-12 Aug-13 Aug-14 Aug-15 Aug-16 Aug-17 Aug-18 Aug-09 G. Jakarta Java ex-Jakarta Ex-Java
Source: JSMR, IndoPremier Source: JSMR, IndoPremier
We then categorize JSMR’s toll road assets in Greater Jakarta into two big categories, namely inner-city and inter-city toll roads, to better understand the recent traffic decline in Greater Jakarta’s toll road. The inner-city toll road comprises of Cawang – Tomang – Pluit, Prof. Dr. Ir. Sedyatmo, and Jakarta Outer Ring Road (JORR) section. The inter-city toll road includes Jakarta-Bogor-Ciawi (Jagorawi), Jakarta – Cikampek, Jakarta – Tangerang, and Bogor Outer Ring Road (BORR). In general, the trend of inner-city and inter-city toll roads are similar though inter-city category starts to flatten in 3Q18 and inner-city category is still continuing its decline pattern. As mentioned before, the payment migration to opened-system happened in JSMR’s several toll roads. Most of which are applied in Greater Jakarta toll roads that include Jakarta – Tangerang section in April 2017, Jakarta – Bogor – Ciawi (Jagorawi) in September 2017, JORR in September 2018, and Jakarta – Cikampek in May 2019.
Fig. 75: Greater Jakarta Traffic Trend (12-m rolling, in PCUm) Fig. 76: Regional Transport CPI vs. Tariff Trend in Jakarta
600 50%
550 45% 40% 500 35% 30% 450 25% 400 20% 15% 350 10%
300 5%
0%
Jun-10 Jun-11 Jun-09 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18
Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Sep-18
Dec-09 Dec-10 Dec-08 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18
Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19
Inner-city Toll Road Inter-city Toll Road JIRR (4-q rolling, yoy) JORR (4-q rolling, yoy) Jakarta RCPI (12-m rolling, yoy)
Source: JSMR, IndoPremier Source: CEIC, JSMR,IndoPremier
Opened-system migration also provides a room for JSMR to apply biannual tariff hike adjustment; some of which exceed the regional inflation growth. We present the trend on respective toll tariff and regional inflation rate (Fig. 76, 77). The overall trend tells that toll road operator has been compensated for inflation factor and the tariff hike trend is bounded within its respective regional inflation rate. Nevertheless, the anomaly happens to recent period (in 2017-2018) where JORR (Fig. 76) and Jakarta – Tangerang (Fig. 77) toll road section experienced a staggering tariff inflation that outpaces its respective regional inflation. This anomalous tariff inflation should explain the traffic decline trend in overall Greater Jakarta, inner-city and inter-city toll road.Furthermore, we would like to assess whether the benefit of opened-system (tariff hike) outweighs the cost of having a decline in traffic.
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JSMR Re-initiating coverage
Fig. 77: Regional Transport CPI vs. Tariff Trend in Banten Fig. 78: Tariff and Traffic Trends in Jakarta – Tangerang
12 7,000 25% 12 6,000 11 20% 11 5,000 10 15% 10 4,000 9 3,000 10% 9 8 2,000 5% 8 7 1,000
0%
Jan-19 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18
Sep-14 Sep-10 Sep-11 Sep-12 Sep-13 Sep-15 Sep-16 Sep-17 Sep-18
May-10 May-11 May-12 May-13 May-14 May-15 May-16 May-17 May-18
3Q12 1Q13 4Q11 1Q12 2Q12 4Q12 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 Monthly Traffic (PCUm) Group I Tariff Jakarta - T'gerang (4-q rolling, yoy) Banten RCPI (12-m rolling, yoy)
Source: CEIC, JSMR,IndoPremier Source: JSMR,IndoPremier
In the cost and benefit analysis, we compare monthly traffic data on respective toll roads with Group I tariff representing the passenger car users. The rationale of using Group I tariff is due to its significant contribution toward total tariff creation (c. 90-95% of traffic). We raise a five case study for this analysis. First, Jakarta – Tangerang section had a dramatic increase over its Group I tariff to Rp6,500 (from Rp2,500) in 2Q17 where we can see the effect seems non- existence as the traffic trend keeps increasing (Fig. 78).
This proves that some of JSMR’s Greater Jakarta toll road exhibit a demand resiliency in the event of abrupt and significant tariff hike. We, however, think that this demand resiliency could also result from the frequency of tariff hike adjustment. In Jakarta – Tangerang section, it has only two tariff hike adjustment in 3Q15 and 2Q17. Other possibilities include less transport route alternatives, the presence of industrial estate, and sea port at the exit of this toll road section.
Fig. 79: Tariff and Traffic Trends in JIRR (Cawang – Pluit) Fig. 80: Tariff and Traffic Trends in Jakarta – Bogor - Ciawi
27 10,000 7,000 26 18 9,000 25 17 6,000 24 8,000 16 5,000 23 15 22 7,000 14 4,000 21 13 6,000 20 12 3,000 19 5,000 11 18 2,000 10 17 4,000
9 1,000
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
Sep-17 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-18
May-15 May-10 May-11 May-12 May-13 May-14 May-16 May-17 May-18
Jan-17 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-18 Jan-19
Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Sep-18
May-11 May-10 May-12 May-13 May-14 May-15 May-16 May-17 May-18 Monthly Traffic (PCUm) Group I Tariff - JIRR Group I Tariff - Sedyatmo Monthly Traffic (PCUm) Group I Tariff
Source: JSMR,IndoPremier Source: JSMR,IndoPremier
Second, we provide a case of Jakarta Inner Ring Road (JIRR) which consists of Cawang – Tomang – Pluit section and Prof. Dr. Ir. Sedyatmo (airport toll road) that experienced a multiple tariff hike. This toll road section proves to have a demand resiliency feature as suggested by its traffic trend (Fig. 79) where the traffic is steadily increase. This is reasonable as JIRR purely faces a demand from relatively high-income Jakarta resident. The contrasting demand picture seems to appear on our third case of Jagorawi toll road section. This toll road section only has two tariff hikes in 3Q15 and 3Q17. In 3Q17, the demand responds tariff hike in a dramatic way. Traffic of Jagorawi decreased to 14 PCUm in Sept’17 (-23% mom), two months after new tariffs were effectively implemented. This dramatic decrease in traffic (Fig. 80), however, was well compensated by tariff hike in 3Q17 to Rp6,500 (+160%). This proves that the demand of toll road services is inelastic, though the users generally come from non- high income resident.
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JSMR Re-initiating coverage
Fig. 81: Tariff and Traffic Trends in JORR Fig. 82: Tariff and Traffic Trends in Jakarta – Cikampek
20 16,000 18 15,000 19 12,000
16 14,000 17 10,000 14 13,000 12 12,000 15 8,000
10 11,000 13 6,000 8 10,000 6 9,000 11 4,000
4 8,000 9 2,000
2 7,000
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
Sep-17 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-18
- 6,000 Sep-10
May-15 May-10 May-11 May-12 May-13 May-14 May-16 May-17 May-18
Monthly Traffic (PCUm) Group I Tariff - Region III
Jul-17 Jul-12
Jan-10 Jan-15
Jun-10 Jun-15
Oct-13 Oct-18
Apr-11 Apr-16
Sep-11 Feb-12 Sep-16 Feb-17
Dec-12 Dec-17
Aug-14
Nov-10 Nov-15
Mar-19 Mar-14 May-18 May-13 Group I Tariff - Region IV Monthly Traffic (PCUm) Group I Tariff
Source: JSMR,IndoPremier Source: JSMR,IndoPremier
Our fourth case analyzes Jakarta Outer Ring Road (JORR) section whose tariff was hiked multiple times in the same manner as JIRR section. This time, the demand adversely responds the tariff hike (Fig. 81) where the traffic dropped to 9 PCUm in Oct’18 (-29% mom). We attribute this decline to the overshooting JORR tariff hike relative to Jakarta Regional transport CPI (Fig. 76). We observe similar demand response to Jagorawiin which the traffic decline lags the tariff hike (Fig. 80, 81). In the case of JORR, the decline happens four months after new tariffs implemented. The net effect of this tariff hike is the same with preceding case where the decline in traffic is compensated by tariff hike (+57%)
Our last case talks about Jakarta – Cikampek. We add the Group I tariff on Region III (Bekasi to Karawang) and IV (Cikarang – Cikampek) as theseregions’s tariff surged the most to Rp12,000 (+41%) and Rp12,000 (+200%) respectively. This toll road section has an erratic price movement as this toll road is frequently used for periodic homeward trip and subject to price discount imposed by government. In the year of 2014-2015, the traffic seems to be unaffected by the tariff hike. The recent decrease in traffic also happens in the absence of tariff hike. The reason for this event is the construction of elevated Jakarta – Cikampek II that was started in June 2017.
In general, Greater Jakarta toll road assets possess the demand that is robust and resilience. The traffics growth on several toll road sections are immune to (periodic or abrupt) upward pricing adjustment. Traffic contraction could also be driven by a short-lived, project-specific event (e.g. Jakarta – Cikampek case). Some other toll roads experience swopping traffics as tariff hike assumes though the net effect shows that the tariff inflation consistently outsizes the traffic deflation. In sum, this region collectively offers the portfolio of matured toll road assets with high earning visibility (cetaris paribus). We thus forecast an aggregate traffic growth of 3%/5% in FY19F/20F.
Java excl. Jakarta Region – Long-run value creation produced by inter-asset synergy
JSMR has 17 toll road concessions of which 10 concessions (Fig. 83) have been fully or partially under operation with 546km in length covering 58% of operating toll road in Java excl. Jakarta region. This region is currently undergoing massive expansion cycle due to government ambition of connecting all Java cities across provinces with Trans Java toll roads. In this toll road network expansion, JSMR puts in a greater benefit among other toll road operators as they own long-established toll road segments (e.g. Cikampek – Purwarkarta – Padalarang, Padalarang – Cileunyi, and Palimanan – Kanci toll road) whose growth could be boosted by the interconnection of existing with newly-built toll roads. In addition, this interconnection possibly reignite the traffic growth of matured Greater Jakarta toll roads.
Refer to Important disclosures in the last page of this report 28
JSMR Re-initiating coverage
In this region, most of toll road assets are still on the early- to developing-stage in terms of business cycle. This cycle is associated with high usage of leverage, unstable traffic volume, an unmet economics of scale (as a result of financial leverage), negative earnings, and negative operating cash flows. Despite of having those attributes, several Java toll roads have successfully securitized the assets with multi-purpose plans of promoting better financial stance and enabling other toll road expansions. This marketability of Java toll road assets reflects positive market perception of long-run financial feasibility on this region’s toll road despite having temporal earnings disruption in early concession period.
Fig. 83: Jasa Marga’s Toll Road Networks in Java and Infrastructure Facilities
Source: JSMR, IndoPremier
We also notice that Java excl. Jakarta region toll roads are virtually interstate toll roads unlike Greater Jakarta’s toll road which comprises of inner-city and inter-city toll road in a balanced way. This composition affects the demand profile up to some extent where one specific Java toll road segment faces wide-ranging demand profiles with varied purchasing powers across states. We categorize Java toll road to see the demand characteristic into three regions.
West Java (W. Java) region consists of Cikampek – Purwakarta – Padalarang (Cipularang), Padalarang – Cileunyi (Padaleunyi), and Palimanan – Kanci (Palikanci) road section. Central Java (C. Java) region comprises of Semarang section ABC, Semarang – Solo, and Solo – Ngawi. East Java (E. Java) region includes Surabaya – Gempol, Surabaya – Mojokerto, Gempol – Pandaan, Gempol – Pasuruan, and Ngawi – Kertosono. The recent traffic trend over these three regions gives a diverging trend where East Java shows a strong growth, West Java gives a gradual increasing trend, and Central Java falls in trend. We discuss each region’s traffic trend in the following paragraphs.
Fig. 84: Interstate Toll Road Traffic Trends (12-m rolling) Fig. 85: Traffic Trends in West Java Toll Roads
6.5 140 5.5 120 4.5 100
80 3.5
60 2.5
40 1.5
20 0.5
Jul-13 Jul-18
Jan-11 Jan-16
Jun-11 Jun-16
Oct-09 Oct-14
Apr-12 Apr-17
Sep-12 Feb-13 Sep-17 Feb-18
Dec-08 Dec-13 Dec-18
Jul-13 Jul-18
Aug-10 Aug-15
Nov-11 Nov-16
Mar-10 Mar-15
May-09 May-14
Jan-11 Jan-16
Jun-11 Jun-16
Oct-14 Oct-09
Apr-17 Apr-12
Sep-12 Feb-13 Sep-17 Feb-18
Dec-08 Dec-13 Dec-18
Aug-10 Aug-15
Nov-11 Nov-16
Mar-10 Mar-15
May-09 May-14 Purbaleunyi Palikanci W. Java C. Java E. Java
Source: JSMR, IndoPremier Source: JSMR, IndoPremier
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JSMR Re-initiating coverage
West Java has deliveredstable traffic trend vis-à-vis Central and East Java. It tends to cater less volatile trends relative to East and Central Java region (Fig. 84). This relatively stable performance is due to the fact that Java toll roads are heavily used for many logistical activities as well as accommodating day-to-day mobility for passenger car users which involve a long-haul trip (across regencies and provinces).
In our figure (Fig. 86), we provide the road quality statistics represented by the proportion of sub-standard road (as of total road) in the province-, regency-, and city-level where the sub- standard road in West Java are comparatively high in both province- and regency-level at 16% and 29%, respectively, in FY17. The road coverage is also relatively low at 86% with the road growth is on par with national average (Fig. 87). This findings should partly explain the stable trend over West Java toll road traffic where the users still perceive toll road service as a staple transportation mean. Due to this nature, our back at-the-envelope implies that Group III to V users to form a higher proportion in Java region (at 20-30% vs. Greater Jakarta at 5- 10%).
Fig. 86: Sub-Standard Road Proportion in 2017 – Java Regions Fig. 87: Road Coverage and Growth (%, 7-yr CAGR) – Java
35% 94% 3.0% 29% 29% 3% 30% 92% 2.8% 26% 90% 2.6% 25% 2.4% 88% 2% 2.2% 20% 86% 16% 17% 15% 94% 2.0% 84% 15% 1.8% 10% 82% 86% 1.6% 10% 80% 7% 83% 1.4% 5% 1% 5% 78% 1.2% 76% 1.0% 0% W. Java C. Java E. Java W. Java C. Java E. Java Road Coverage National Growth (%, 7-yr CAGR) - RHS Provincial-Level Regency-Level City-Level Road Growth (%, 7-yr CAGR) -RHS
Source: CEIC, IndoPremier Source: CEIC, IndoPremier
Purbaleunyi road section seems to drive the overall stable traffic trend in West Java. The recent drop in West Java traffic was due to Palikanci’s tariff hike impact in 2Q16. In terms of pricing, the tariff trends on Purbaleunyi and Cipularang toll road section are reasonably tailing the region’s transport CPI trend well (Fig. 88).
Fig. 88: Regional Transport CPI vs. Tariff Hike Trend of Purbaleunyi and Cipularang
25%
20%
15%
10%
5%
0%
Padaleunyi (4-q rolling, yoy) Cipularang (4-q rolling, yoy) W. Java RCPI (12-m rolling, yoy)
Source: CEIC, JSMR, IndoPremier
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JSMR Re-initiating coverage
Fig. 89: Tariff and Traffic Trends in Purbaleunyi Fig. 90: Tariff and Traffic Trends in Palikanci
11,000 7 2.55 36,000 2.35 10,000 6 2.15 31,000 9,000 1.95 8,000 6 26,000 1.75 7,000 21,000 5 1.55 6,000 16,000 1.35 5 5,000 11,000 1.15 0.95 4,000 4 6,000
0.75 3,000
Jul-12 Jul-17
Jan-10 Jan-15
Jun-10 Jun-15
Oct-13 Oct-18
Apr-11 Apr-16
Sep-11 Feb-12 Sep-16 Feb-17
Dec-12 Dec-17
Aug-14
Nov-10 Nov-15
Mar-14 Mar-19
May-13 May-18
Jul-12 Jul-17
Jan-10 Jan-15
Jun-10 Jun-15
Oct-13 Oct-18
Apr-11 Apr-16
Sep-11 Feb-12 Sep-16 Feb-17
Dec-12 Dec-17
Aug-14
Nov-10 Nov-15
Mar-14 Mar-19
May-13 May-18 Monthly Traffic (PCUm) Group I Tariff - Padalarang Monthly Traffic (PCUm) Group I Tariff Group III Tariff Group I Tariff - Cipularang
Source: JSMR,IndoPremier Source: JSMR, IndoPremier
Purbaleunyi also exhibits demand resiliency as this section experienced multiple tariff hikes (Fig. 89). On the other hand, the traffic on Palikanci section is more susceptible to tariff hike though the traffic is able to gain a traction as the historical trend suggests (Fig. 90). We notice the traffic on Palikanci had a sudden drop in June 2016 which was caused by the renovation of Palikanci toll gate for opened-system payment migration.
The traffic in Central Java region, in general, has underperformed other Java regions (Fig. 84) which could be explained by several reasons. First, the alternating transport facility, such as trains, offers competitive fares which is nearly equivalent to the toll road tariff to Semarang which costs Rp350k (vs. low range of train tariff of Rp278k; Fig. 91). Second, the region sees less presence of major airports and seaports. There is also no major industrial estate residing in the region (Fig. 83). Major airports available are near the border of Central and East Java, namely Adi Soemarmo and Achmad Yani Airports (Fig. 83) whose traffic share remain insignificant relative to other Indonesian major airports (Fig. 92).
Fig. 91: The Fares on Alternative Transports (Air and Train) Fig. 92: Air-borne Traffic on Indonesian Major Airports
2,500
30% 60% 2,000 25% 50% 1,912 20% 40%
1,500 15% 30% 1,340 10% 20% 5% 10% 1,000 0% 0% 767 603 500 405 278
- Low Mid High Traffic Share (%) National Growth (%, 9-yr CAGR; 2008-2017) Air Fares Train Fares Growth (%, 9-yr CAGR; 2008-2017)
Source: Traveloka, Tiket.com,IndoPremier Source: CEIC, IndoPremier
JSMR’s Central Java toll road asset - Semarang Sect. ABC - shows a typical trend in which tends to be disrupted by the tariff hike, though the underlying demand profile is inelastic. This was suggested by recent rebound in traffic. The traffic shrinkage only lasts for several months. The overall net effect on tariff hike still drives revenue up over the longer period of time.
Refer to Important disclosures in the last page of this report 31
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Fig. 93: Traffic Trends in Central Java Toll Roads Fig. 94: Tariff and Traffic Trends in Semarang Sect. ABC
5.0 2.5 4.5 5.5 8,000 4.0 2.0 5.0 7,000 3.5 4.5 6,000 3.0 1.5 2.5 4.0 5,000 2.0 1.0 3.5 4,000 1.5 1.0 0.5 3.0 3,000 0.5 2.5 2,000 - -
2.0 1,000
Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Apr-18
Dec-12 Dec-18 Dec-08 Dec-09 Dec-10 Dec-11 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17
Aug-09 Aug-10 Aug-11 Aug-12 Aug-13 Aug-14 Aug-15 Aug-16 Aug-17 Aug-18
Jul-12 Jul-17
Jan-15 Jan-10
Jun-10 Jun-15
Oct-13 Oct-18
Apr-11 Apr-16
Sep-11 Feb-12 Sep-16 Feb-17
Dec-12 Dec-17
Aug-14
Nov-10 Nov-15
Mar-14 Mar-19 May-18 Semarang Sect. ABC Semarang - Solo - RHS May-13
Solo - Ngawi - RHS Ngawi - Kertosono -RHS Monthly Traffic (PCUm) Group I Tariff Group III Tariff
Source: JSMR, IndoPremier Source: JSMR,IndoPremier
The interesting story lies on the border of this region with East Java where there are JSMR’s toll road connecting these two regions (Semarang – Solo, Solo – Ngawi, and Ngawi – Kertosono) that altogether have demonstrated strong growth (6-yr CAGR of 39% since its inception in November 2011. We believe the newly-operating routes (Solo – Ngawi and Ngawi – Kertosono) help reinvigorating Semarang Sect. ABC toll road (see its recent trend whose move is in parallel with newly-operating routes). This indicates that the synergy is in presence and should positively affect other Java toll roads that lost the growth momentum due to tariff hike or other project-specific events.
Fig. 95: Traffic Trends in East Java Toll Roads Fig. 96: East Java starts dominating Java revenue formation
9.0 2.5 100% 8.5 8.0 2 90% 7.5 80% 7.0 1.5 70% 6.5 60% 6.0 1 50% 5.5 40%
5.0 0.5 30% 4.5 20% 4.0 0 10%
0%
Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Apr-18
Dec-12 Dec-08 Dec-09 Dec-10 Dec-11 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18
Aug-13 Aug-09 Aug-10 Aug-11 Aug-12 Aug-14 Aug-15 Aug-16 Aug-17 Aug-18
Surabaya - Gempol Surabaya - Mojokerto - RHS
Gempol - Pandaan - RHS Gempol - Pasuruan - RHS West Java Central Java East Java
Source: JSMR, IndoPremier Source: JSMR, IndoPremier
East Java region, conversely, shows a robust demand performance where all toll road assets demonstrated a strong growth over the last 10 years (Fig. 95). In this region, the presence industrial estate, airports, and seaports are more intense than East Java; and thus more logistical activities engage in this region. Our back-at-the-envelope calculation on traffic composition also reveals that this region has a higher mix of Group III to V vehicles passing through JSMR’s toll road which should explain higher revenue contribution than Central Java. The trend on Java revenue formation (Fig. 96) confirms this where East Java contributes 40% of total Java toll road revenue in 1Q19.
Refer to Important disclosures in the last page of this report 32
JSMR Re-initiating coverage
Fig. 97: Tariff and Traffic Trends in Surabaya – Gempol Fig. 98: Revenue Growth Trends in Java Island
9.5 10,000 100% 9.0 9,000 80% 8.5 8,000 8.0 60% 7.5 7,000 40% 7.0 6,000 20% 6.5 5,000 6.0 4,000 0%
5.5
3Q16 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 5.0 3,000 -20% 3Q12 4.5 2,000 -40%
-60%
Jul-12 Jul-17
Jan-10 Jan-15
Jun-10 Jun-15
Oct-13 Oct-18
Apr-11 Apr-16
Feb-17 Sep-11 Feb-12 Sep-16
Dec-12 Dec-17
Aug-14
Nov-10 Nov-15
Mar-14 Mar-19
May-13 May-18 -80% Monthly Traffic (PCUm) Group I Tariff Group III Tariff West Java Central Java East Java Greater Jakarta
Source: JSMR, IndoPremier Source: JSMR, IndoPremier
We also give a showcase of Surabaya – Gempol tariff and traffic trend (Fig. 97). In the figure, this toll road is able to keep the growth momentum despite having multiple tariff hikes. This suggests that the demand over toll road services is independent of tariff hike disruption. One of possible argument provides in preceding figure (Fig. 86) where nearly a third of the road is sub-standard in terms of its quality and the road coverage in East Java (Fig. 87) is relatively low.
Both traffic trend and revenue composition on East Java toll road (Fig. 96) suggest that this sub region offers good asset quality on which the assets were recently securitized as a means of raising alternative financing. The investors’ perception toward this instrument has also been high as reflected by the valuation (P/B) of the divested assets (Gempol – Pandaan stake at P/B of 2.3x and Semarang – Batang, Solo – Ngawi, and Ngawi – Kertosono at P/B of 1.9x).
In sum, we exhibit revenue growth trends for all Java regions to describe the overall asset characteristic (Fig. 98). We observe that West Java toll road possesses the quality which is identical to Greater Jakarta. Interestingly, a close look on growth trend on Greater Jakarta and West Java is negatively correlated; this is offsetting trend should promote revenue stability. East Java is the top performing asset that consistently book a positive traffic growth over time. In the case of Central Java region, we witness a partial operation of other Trans Java segments in the region, namely Pejagan – Pemalang in November 2018 and Pemalang – Batang in December 2018. We believe the synergy of these toll road with JSMR’s Central Java toll road assets should be visible in the upcoming years and thus creates a long-run value creation across Trans Java toll road assets. We forecast an aggregate Java (excl. Jakarta) traffic growth of 25%/16% in FY19F/20F.
Refer to Important disclosures in the last page of this report 33
JSMR Re-initiating coverage
Ex-Java Region – Multistage growth with prospective synergy-cycle provider
Jasa Marga operates five toll road concessions in three separated islands. In Sumatera, it currently operates Belawan – Medan – Tj. Morawa (Belmera) section (Fig. 99) and Medan – Kuala Namu – Tb. Tinggi section is partially operated and near of its construction completion (see Appendix 1 for the timeline of toll road completion in 2019). In Borneo, JSMR has a concession on Balikpapan – Samarinda toll road (Fig. 100) which is currently on the mid way of construction phase (see Appendix 1).
Fig. 99: JSMR’s Sumatera Toll Road Fig. 100: JSMR’s Borneo Toll Road
Source: JSMR, IndoPremier Source: JSMR, IndoPremier
In Sulawesi (Fig. 101), JSMR has one concession in Manado – Bitung toll road section which is now at the early stage of construction phase (see Appendix 1). Jasa Marga also owns one toll road concession in Bali (Nusa Dua - Benoa). We qualitatively describe the demand characteristic of Ex-Java toll road by basing our analysis on several statistics. First, ex-Java regions see less aggressive road infrastructure expansion as we can see Borneo, Sulawesi, and Sumatera grows at 7-yr CAGR of 2.6%, 1.6%, and 2.4%, respectively; which is below the national average of 2.8% (Fig. 102; dot-plot; RHS).
Fig. 101: JSMR’s Sulawesi Toll Road Fig. 102: Road Coverage on Regions containing JSMR toll road
Source: JSMR, IndoPremier Source: CEIC, IndoPremier
The less aggressive road infrastructure development is also indicated by low level of road coverage (Fig. 102; bar graph; LHS). The road coverage metric for Borneo, Sulawesi, and Sumatera were gauged at 12%, 42%, and 37%, respectively, in FY17. These regions scored low relative to both Java region (at the range of 83%-94%). Bali is the special case where the road coverage exceeds 100%. The road quality has also been low for ex-Java regions at both regency- and province-level (logistical activity happens inter-regency and –province). The sub-standard road proportion at regency-level (Fig. 104) in Bali, Borneo, Sulawesi, and Sumateraare at 33%, 49%, 49%, and 45%, respectively. While, the sub-standard road proportion at province-level (Fig. 104) in Bali, Borneo, Sulawesi, and Sumatera are at 17%, 30%, 38%, and 28%, respectively. All of these data suggest that ex-Java regions are lacking of road connectivity and quality. Refer to Important disclosures in the last page of this report 34
JSMR Re-initiating coverage
Fig. 103: Good Road Proportion in 2017 Fig. 104: Sub-Standard Road Proportion in 2017
90% 50%
80%
70% 40%
60% 30% 50%
40% 20% 30%
20% 10% 10%
0% 0% Sumatera W. Java C. Java E. Java Borneo Bali Sulawesi Eastern Total Sumatera W. Java C. Java E. Java Borneo Bali Sulawesi Eastern Total Indo Indo
Provincial-Level Regency-Level City-Level Provincial-Level Regency-Level City-Level
Source: CEIC, IndoPremier Source: CEIC, IndoPremier
The statistics on driving license ownership (Fig. 105-107) gives a rough idea of traffic mix on ex-Java toll roads. The purported general idea is that the higher car license share should translate to lower demand variation. This idea is particularly reflected in Bali region whose car license share is nearly on par with Java region (Fig. 105). Hence, the demand on Bali toll road service should approximately perform in the same manner as Java toll road
Fig. 105: Car Driving License Ownership Statistics Fig. 106: Truck Driving License Ownership Statistics
18% 25% 25% 30% 16% 20% 20% 14% 20% 12% 15% 10% 10% 10% 15% 8% 0% 6% 5% 10% -10% 4% 0% 2% -20% 5% 0% -5% -30%
0% -40% N. G. Jakarta W. Java C. Java E. Java Banten Bali E. Borneo N. Sumatera Sulawesi
Car License Share (%) Truck License Share (%) National Growth (%, 7-yr CAGR) National Growth (%, 7-yr CAGR) Licence Ownership Growth (%, 7-yr CAGR) Regional License Creation Growth (%, 7-yr CAGR)
Source: CEIC, IndoPremier Source: CEIC, IndoPremier
Conversely, we notice that car license share is especially low for both East Borneo and North Sulawesi region (Fig. 105) which possibly imply a more volatile demand given that the domination of trucks (Fig. 106) and heavy vehicle (Fig. 107) in certain toll roads should render its earnings characteristic to follow the manufacturing business cycle which introduces time seasonality. In North Sumatera region, license share across all categories (Fig. 105-107) are gauged higher than East Borneo and North Sulawesi. This should suggest that demand volatility should exist, though the volatility should be lower than East Borneo and North Sulawesi region.
Refer to Important disclosures in the last page of this report 35
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Fig. 107: Heavy Vehicle Driving License Ownership Statistics Fig. 108: Air Traffic and Its Share for Indo Major Airports
20% 50% 18% 16% 40% 14% 30% 12% 10% 20% 8% 6% 10% 4% 0% 2% 0% -10% N. G. Jakarta W. Java C. Java E. Java Banten Bali E. Borneo N. Sumatera Sulawesi
Heavy Vehicle License Share (%) National Growth (%, 7-yr CAGR)
Regional License Creation Growth (%, 7-yr CAGR)
Source: CEIC, IndoPremier Source: CEIC, IndoPremier
We also put the statistics on air-related traffic as JSMR’s ex-Java toll roads are mostly situated in proximity with major Indonesian airport. Excluding the observation on Java airport, Kuala Namu (N. Sumatera) and Ngurah Rai (Bali) air traffic share are moderate (Fig. 108). When it comes to cargo traffic, the traffic share is found higher in Kualanamu (N. Sumatera) and Sepinggan (E. Borneo). These statistics should support our view on ex-Java toll road’s higher traffic mix on heavy vehicle group.
Fig. 109: Cargo Traffic and Its Share for Indo Major Airports Fig. 110: Traffic Trends in Ex-Java Toll Roads
30% 60% 3 25% 50% 20% 40% 2.5 15% 30% 10% 20% 2 5% 10% 1.5 0% 0% 1
0.5
0
Traffic Share (%)
Jul-13 Jul-18
Jan-11 Jan-16
Jun-11 Jun-16
Oct-09 Oct-14
Apr-12 Apr-17
Feb-13 Sep-12 Sep-17 Feb-18
Dec-08 Dec-13 Dec-18
Aug-10 Aug-15
Nov-11 Nov-16
Mar-10 Mar-15
May-09 May-14 National Growth (%, 9-yr CAGR; 2008-2017) Belmera Medan - Tb. Tinggi Nusa Dua - Benoa Growth (%, 9-yr CAGR; 2008-2017)
Source: CEIC, IndoPremier Source: JSMR, IndoPremier
We then see the traffic dynamics on three JSMR’s ex-Java toll roads (Fig. 110). Belawan – Medan – Tj. Morawa (Belmera) section has maintained its traffic up trend well as we can see multiple tariff hikes (Fig. 111) historically spur short-termdown move in traffic; the attribute that is similar to majority of toll road assets. The recent rebounding trend on Belmera traffic is partly attributable to road interconnectivity with Medan – Tb. Tinggi road section whose toll traffic has been delivering a spiking growth.
The importance of road interconnectivity can also be witnessed in the case of JSMR’s Bali toll road where it has no alternating toll road nearby. This causes the toll road to miss the synergy variable within its growth function. Traffic trend on Nusa Dua toll road nearly reverts back to its initial level as this toll road is systematically driven by the tourism activity whose visitation dropped in September 2017 (-15% yoy). This signifies the importance of road interconnectivity as the complementing traffic growth variable.
Refer to Important disclosures in the last page of this report 36
JSMR Re-initiating coverage
Fig. 111: Tariff and Traffic Trends in Belmera Fig. 112: Ex-Java Quarterly Revenue Trend and Its Share (%)
160 7% 16,000 2.60 140 6% 14,000 2.40 120 5% 2.20 12,000 100 4% 2.00 10,000 80 1.80 3% 8,000 60 1.60 2% 40 6,000 1.40 20 1% 1.20 4,000
- 0%
Jul-12 Jul-17
Jan-10 Jan-15
Jun-10 Jun-15
Oct-13 Oct-18
Apr-16 Apr-11
Sep-11 Feb-12 Sep-16 Feb-17
Dec-12 Dec-17
Aug-14
Nov-10 Nov-15
Mar-14 Mar-19
May-13 May-18
Monthly Traffic (PCUm) Group I Tariff Group III Tariff Ex-Java Revenue Share (%) - RHS
Source: JSMR, IndoPremier Source: JSMR, IndoPremier
In sum, we believe that the prospect over ex-Java toll roads will be mainly driven by Sumatera region as the traffic interconnectivity potential is clearly visible as many Trans Sumatera toll road sections are entering the end of construction phase and its operation should begin in the near future. As a result, the traffic synergy should ensue. Bali toll road growth should be limited unless there are government plans to construct other toll roads nearby and thus enable the traffic synergy across toll roads. Meanwhile, toll road assets residing in Borneo and Sulawesi should be prospective synergy-cycle provider in relation to government’s effort to ensure holistic connectivity across island through Trans-province toll road project in respective islands. We forecast aggregate ex-Java traffic growth of 25%/16% in FY19F/20F, to account for the early synergy on JSMR’s Sumatera toll roads and conservative growth on JSMR’s Borneo, Bali, and Sulawesi growth post future operation.
Financial Analysis
We herein discuss about JSMR financial highlights to describe its earnings historical performance. In terms of revenue composition (Fig. 113), Jakarta toll roads have considerable domination though other regions recently start to give revenue contribution toward total JSMR revenue as several regions (E. Java and Ex-Java) booked high revenue growth (Fig. 114). Java and West Java have also exhibited less volatile revenue growth. The only contrasting picture over the revenue growth is painted by Central Java that catered a declining trend though it lately rebounded upward.
Fig. 113: JSMR Revenue Composition (Rpbn) Fig. 114: Revenue Growth (% yoy, 4-q rolling)
80% 145% 2,500 60% 125% 2,000 40% 105% 1,500 20% 85%
1,000 0% 65%
4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 -20% 3Q12 500 45%
-40% 25% -
-60% 5%
2Q11 1Q12 4Q12 3Q13 2Q14 1Q15 4Q10 1Q11 3Q11 4Q11 2Q12 3Q12 1Q13 2Q13 4Q13 1Q14 3Q14 4Q14 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19
Jakarta W. Java C. Java E. Java Ex-Java Jakarta W. Java C. Java E. Java Ex-Java - RHS
Source: JSMR, IndoPremier Source: JSMR, IndoPremier
Refer to Important disclosures in the last page of this report 37
JSMR Re-initiating coverage
The overall revenue growth, on the other hand, shows a property of mean reversion (Fig. 115; line-graph). This is due to two main reasons which are tariff hikes in some JSMR toll roads and undergoing toll road constructions. Although we have briefly presented analysis on the impact of tariff hike to traffic in some JSMR toll roads, we provide another measure to get a better sense on the tariff hike impact where we use price elasticity to measure how sensitive the change in traffic is; given the change in tariff. Price elasticity measured below 1 means that the respective toll road has inelastic demand profile (i.e. traffic is nearly unaffected by tariff change) when the measure hits above 1 means the demand is elastic (i.e. traffic is highly affected by tariff change).
Fig. 115: Revenue Share Across Region (%) Fig. 116: Price Elasticity of JSMR’s Toll Road Across Regions
100 20% 2.0 90 18% 1.973 1.8 80 16% 1.6 70 14% 1.4 60 12% 1.2 50 10% 1.0 40 8% 0.8 30 6% 0.6 0.631 20 4% 0.479 0.4 0.401 10 2% 0.312 0.288 0.2 0.050 - 0% 0.008
0.0 0.014
1Q13 2Q17 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 4Q10 Jakarta Java Ex-Java
Jakarta W. Java Low Mid High C. Java E. Java Ex-Java Revenye Growth (% yoy, 4-q rolling)
Source: JSMR, IndoPremier Source:JSMR, IndoPremier
In the figure provided (Fig. 116), we can see the magnitude of price elasticity does differ across regions. Jakarta particularly carries the lowest price elasticity which is plausible given the toll roads characteristic that have entered mature business cycle. Java region comes with higher price elasticity though both of Jakarta and Java region’s price elasticity measure indicate that they have an inelastic demand profile which confirms our preceding analysis about the impact of tariff hike on traffic. Meanwhile, ex-Java region has a wide range on price elasticity measure with the upper end of 1.9 which gives a sign of demand elasticity on the region; thus the tariff hike could negatively affect the traffic performance of ex-Java toll road. This is especially true for newly-built toll road and its impact should be minimal due to its small revenue contribution to total JSMR toll road revenue.
Fig. 117: Profitability Margins (%) Fig. 118: EBITDA Margin and Several Common Size I/S items
70% 56% 17%
60% 15% 54% 50% 13% 52% 11% 40% 50% 9% 30% 7% 48% 20% 5% 46% 10% 3%
44% 1% 0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2010 2011 2012 2013 2014 2015 2016 2017 2018 EBITDA Operating Salaries (% of Sales) GPM EBITDA OPM Pre-Tax NPM Depreciation (% Sales) Non-Core Sales (% Total)
Source: JSMR, IndoPremier Source: JSMR, IndoPremier
We then place JSMR historical profitability margins trend (Fig. 117) in which we see toll road is a lucrative business. Despite having a large revenue scale, JSMR is still able to book NPM of 22% in FY18. The core operating profit margin, which implies the profit margin when debt is non-existence (could be achieve when it has no asset expansion), is even higher at 57%in FY18. In terms of trend, there was a significant decline in all profitability margin in FY13. This was caused by several things.
Refer to Important disclosures in the last page of this report 38
JSMR Re-initiating coverage
We take a look on EBITDA margins and several common-size income statement items. The use of EBITDA margin is to gauge profitability at core operating level (i.e. excluding non-cash charges). We also select three income statement items and transform them into common-size format (all items divided by total sales). Non-core sales (non-toll revenue) is taken as JSMR now runs a toll road complementing business as a part of revenue diversification effort. Operating salaries expenses account for toll gate operator’s salary. Depreciation, though is a non-cash charges, is a complementing measure to give a brief indication of how massive the asset expansion is.
In 2013, non-toll revenue spiked (Fig. 118) partly causes higher revenue which results to lower margins. Toll road revenue growth in FY13 was also relatively slowed to 4% (vs. FY12: 15%). Common-size depreciation was significantly higher as the construction-in-progress asset were nearly finished and the depreciation on these assets started. Common-size operating salaries also increased due to headcount addition (Fig. 119) to anticipate the operational of new toll road in the subsequent years. This asset expansion rendered higher debt assumption as reflected by higher debt-to-equity (D/E) ratio which budged net margin lower (Fig. 120).
Fig. 119: Operating measures and Salaries (% Sales) Fig. 120: NPM, Leverage, and Concession (% Assets)
16% 6,000 30% 200%
14% 180% 5,000 25% 12% 160% 4,000 20% 10% 140% 8% 3,000 15% 120% 6% 2,000 10% 4% 100% 1,000 2% 5% 80% 0% - 0% 60% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2010 2011 2012 2013 2014 2015 2016 2017 2018 Operating Salaries (% of Sales) Number of Toll Gate Operator NPM D/E Concession (% Assets) Total Length (km)
Source: JSMR, IndoPremier Source: JSMR, IndoPremier
The profitability profile recovers recently as company’s implement e-toll technology that is virtually available to all JSMR toll road assets. This technology increases operating efficiency as reflected by inverted trend on recent common-size operating salaries (Fig. 118) and number of toll gate operator (Fig. 119). JSMR’s EBITDA measured at 57% in FY18 (vs. 49% in FY13). The diverging trend movement in EBITDA and NPM tells that the asset expansion is still underway though we believe the peak capital expenditure cycle had happened in FY18 as reflected by recent decline in D/E ratio (Fig. 120) and flattening JSMR toll road length (Fig. 119).
Fig. 121: Return on Assets (%) Fig. 122: Return on Equity (%)
18% 35% 16% 30% 14% 12% 25% 10% 20% 8% 15% 6% 4% 10%
2% 5% 0% 0% 2011 2012 2013 2014 2015 2016 2017 2018 2011 2012 2013 2014 2015 2016 2017 2018 ROAA Adj. ROAA Core ROAA - RHS ROAE Core ROAE - RHS
Source: JSMR, IndoPremier Source: JSMR, IndoPremier
Refer to Important disclosures in the last page of this report 39
JSMR Re-initiating coverage
The study on stock critical factor – Sovereign 10-yr yield has the ability to explain stock price variations
We now present the fundamental-based critical factors that drive JSMR stock movement. To quantify this discussion, we run a correlation analysis between the stocks and selected fundamental factors. Our selected fundamental factors are EBITDA/share, EPS, and 10-yr yield on Indonesian government bond. EBITDA should tell JSMR underlying level of operating profitability in the absence of leverage and expansion. EPS conveys the profitability after fulfilling its obligation to debt holders. The yield on government bonds should take into account the dynamic on the financing costs. The correlation value of 1 implies that share price moves in the same direction with the variable and the correlation value of -1 suggests that share price has an inverse relation with the variable.
Fig.123: Share Prices vs. Forward and Trailing EBITDA
7,500 1,000
6,500 900 800 5,500 700 4,500 600 3,500 500 400 2,500 300 1,500 200 500 100
Price (Rp) - LHS Trailing EBITDA (Rp/share) - RHS Forward EBITDA (Rp/share) - RHS
Source: Bloomberg, IndoPremier
We further explore the EBITDA measures by providing forward and trailing EBITDA per share. We can see the expectation on EBITDA correlates better with the stock price than using trailing EBITDA. The correlation on forward and trailing EBITDA are 0.68 and 0.66 which suggest that stock prices move in the same direction as EBITDA. The suggested direction, in addition, is reasonably apparent by seeing trend of EBITDA per share and share price. (Fig. 123)
Fig. 124: Share Prices vs. Forward and Trailing EPS
7,500 350
6,500 300 5,500 250 4,500 200 3,500 150 2,500
1,500 100
500 50
Price (Rp) - LHS Trailing EPS (Rp/share) - RHS Forward EPS (Rp/share) - RHS
Source: Bloomberg,IndoPremier
The correlation between forward and trailing EPS with share prices are 0.57 and 0.66, respectively. The correlation analysis also suggests that share prices are positively correlated with EPS though trailing EPS scores higher than forward EPS. This might imply the consensus figure on EPS does not track the share price as good as the historical EPS figure does.
Refer to Important disclosures in the last page of this report 40
JSMR Re-initiating coverage
Fig. 124: Share Prices vs. 10-yr Indonesian Government Bond Yield
8,000 20.0
7,000 18.0 16.0 6,000 14.0 5,000 12.0 4,000 10.0
3,000 8.0 6.0 2,000 4.0 1,000 2.0 - -
Stock Price - LHS (Rp) 10-yr Sovereign Bond Yield - RHS (%)
Source: Bloomberg, IndoPremier
Lastly, we study the correlation of share price with 10-yr Indonesian sovereign bond yield. The rationale behind taking 10-yr tenure on Indonesian bond yield is to better capture the long-term expectation on the economy and it is frequently used as one of critical input in valuing the prospect of long-term asset on which toll road asset fits this description. In addition, the yield curve should describe the expectation on long-term financing costs that a company faces which is important for JSMR as it engages its business with considerable financial leverage. The correlation analysis between these variable is higher (-0.75) than preceding two variables (0.57 – 0.67). The share price and bond yield give an inverse relationship which should be intuitively true as higher financing cost results to lower net earnings and thus lower share price. We conclude that 10-yr government bond yields has a high potential of being a coincident indicator of share price movement.
Equity Valuation and Peer Comparison
Earnings Forecasts
Fig. 125: Summary of Our Earnings Forecasts (in Rpbn) 2017 2018 2019F 2020F 2021F Revenue 9,080 9,970 10,527 12,061 13,752 Gross Profit 5,308 5,918 6,461 7,750 9,137 EBITDA 5,160 5,687 6,168 7,411 8,833 Operating Profit 4,155 4,592 5,638 6,855 8,272 Pre-Tax Profit 3,250 3,210 2,383 2,690 3,172 Net Profit 2,200 2,202 1,961 2,209 2,589
Ratios (%) Gross Margin 58.5 59.4 61.4 64.3 66.4 EBITDA Margin 56.8 57.0 58.6 61.4 64.2 Operating Margin 45.8 46.1 53.6 56.8 60.2 Net Margin 24.2 22.1 18.6 18.3 18.8 ROAA 4.1 3.9 2.9 2.7 2.6 ROAE 14.2 12.0 9.7 9.9 10.6 ROIC 8.5 8.5 9.1 9.4 9.9 Source: IndoPremier
We forecast JSMR’s EBITDA of Rp6.1tn (+8% yoy) and net profit of Rp1.9tn (-11% yoy) in FY19F on the back of modest toll road revenue growth, increasing operating efficiency, and higher financial expenses due to higher debt assumption to finance the incomplete toll road construction. We believe the overall revenue to grow at 6%/14% in FY19F/20F in which the revenue growth should emanate from better Trans Java interconnectivity raised from the construction completion of elevated Jakarta- Cikampek II and Pandaan – Malang toll road. This, in turn, should boost traffic growth though we expect this synergy to happen in FY20F at the earliest as those two essential Trans Java connectors only see a partial operation at the Refer to Important disclosures in the last page of this report 41
JSMR Re-initiating coverage
end of this year (see Appendix 1). The construction completion on several JSMR toll road assets render higher financial expenses in the forecasted periods as many of these toll roads use contractor pre-financing (CPF) causes JSMR to pay back significant amount of money to contractors. The funding is most likely raised through debt instruments.
Fig. 126: Our Earnings Forecast Assumptions
2017 2018 2019F 2020F 2021F Revenue Driver (% yoy) Greater Jakarta Traffic 2.0 (12.6) 3.1 5.1 12.4 Java excl. Greater Jakarta Traffic 1.9 (1.7) 14.5 11.7 14.9 Ex-Java Traffic 9.2 10.1 25.0 15.8 16.3 Total Core Revenue 1.0 9.7 6.3 14.7 14.2 (Toll Business Only)
Cost Drivers (% yoy) Unit Operating Costs (Rpbn/km) (18.9) (3.5) (0.4) 6.8 6.8 Total Cost of Revenue (6.2) 7.4 0.3 6.0 7.1
Unit G&A Costs (Rpbn/km) 14.3 4.9 (9.8) 7.4 7.5 Total Operating Expenses 21.4 15.0 (37.9) 8.8 (3.4)
Operating Toll Road (km) 680 1,000 1,122 1,257 1,527 Cost of Debt - Parent Level (%) 8.5 8.5 8.3 8.3 8.3 Cost of Debt - Subsidiary Level (%) 11.0 10.5 10.3 10.3 10.3
Profitability Margins (%) EBITDA Margin 56.8 57.0 58.6 61.4 64.2 EBIT Margin 45.8 46.1 53.6 56.8 60.2 Pre-tax Margin 35.8 32.2 22.6 22.3 23.1 Net Margin 24.2 22.1 18.6 18.3 18.8
Source: IndoPremier
We expect an increase in both operating and general expenses due to the additional of new operating toll roads, albeit with higher operating efficiency. The cost of financing both at parent- and subsidiary-level are to decrease to 8.3% (-20bps) and 10.3% (-20bps), respectively, in the forecasted years. This is due to its active effort to pioneer many creative financings (see section sensitivity for further discussion). In terms of margin, we believe EBITDA margin to increase gradually, mainly due to lower number of toll gate operators, to 58.6%/61.4% in FY19F/20F.
Fig. 127: Key Earnings Input Growth (%) Fig. 128: Key Income Statement Items Growth (% CAGR)
40.0 39.4 18.0 35.0 15.8 15.8 16.0 14.5 30.0 14.0 12.7 25.0 12.0 11.3 19.2 20.0 9.3 15.2 10.0 15.0 8.0 9.4 8.9 5.6 10.0 6.0 4.8 4.4 5.0 4.0 - 2.0 (0.4) (5.0) (2.4) - Traffic Operating Costs Toll Road Length Finance Costs Revenue EBITDA Pre-Tax Net Income (2.0) 2015-2018A 2018-2021F 2015-2018A 2018-2021F
Source:IndoPremier Source:IndoPremier
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Equity Absolute Valuation
Fig. 129: Our Assumption on Sum-of-The-Part (SOTP) Valuation FY19F Project Investment FY19F Avg. Growth (%, CAGR FY19-21F) Attributable Equity Value EBITDA Cost of Cost Traffic (Rpbn) Margin Equity (%) (Rpbn/km) (PCUm/day) Traffic Revenue (%) Operating Toll Roads
Jakarta Region
- Cikampek Interstate 4,449 11.5 0.49 3.0 6.0 77.1
- Tangerang Interstate 3,583 11.5 0.38 3.0 6.0 80.1
- Jakarta Inner Ring Road 6,072 10.5 0.82 - 3.0 73.0
- Jagorawi 1,643 11.5 0.41 3.0 6.0 65.5
- Jakarta Outer Ring Road 2,179 23.9 0.42 3.0 6.0 77.5
- Bogor Outer Ring Road 1,095 13.7 0.05 3.0 6.0 62.4
Java excl. Jakarta Region
- Purbaleunyi 6,645 12.5 0.19 4.9 8.0 72.4
- Surabaya - Gempol 1,230 12.5 0.28 2.5 14.5 70.1
- Semarang Sect. ABC 691 12.5 0.11 10.0 13.3 61.7
- Palikanci 1,516 12.5 0.04 7.5 10.6 44.7
- Semarang - Solo 513 14.6 0.04 24.1 34.0 (21.8)
- Surabaya - Mojokerto 1,979 16.0 0.10 24.1 27.8 66.3
- Gempol - Pandaan 1,413 17.0 0.04 40.0 44.1 63.6
- Gempol - Pasuruan 1,396 15.2 0.02 40.0 44.1 (35.5)
Ex-Java Region
- Belmera 659 13.5 0.09 15.0 18.4 50.6
- Nusa Dua - Benoa 107 16.6 0.05 8.0 11.2 81.1
- Medan - Tebing Tinggi 1,398 17.9 0.02 30.0 33.8 14.2
Under Construction Toll Roads
Jakarta Region
- Cengkareng - Kunciran 1,281 13.5 231 0.03 30.0 33.8 36.2
- Kunciran - Serpong 1,087 13.5 234 0.03 30.0 33.8 47.9
- Serpong - Cinere 581 14.7 220 0.01 50.1 33.7 8.8
- Elevated Jakarta Cikampek II 2,103 17.9 253 0.03 254.8 265.3 (39.3)
Java excl. Jakarta Region
- Solo - Ngawi 475 17.3 57 0.02 40.0 51.2 (57.0)
- Ngawi - Kertosono 635 17.0 44 0.02 40.0 51.2 (53.3)
- Semarang - Batang 1,031 13.4 147 0.01 40.0 51.2 (187.3)
- Pandaan - Malang 2,206 12.3 154 0.01 40.0 44.1 (69.7)
Ex-Java Region
- Manado - Bitung 1,240 14.0 128 0.01 30.0 33.8 24.4
- Balikpapan - Samarinda 218 24.2 101 0.01 30.0 33.8 48.7
Summary
- Operating Toll Roads 36,567
- Under Construction Toll Roads 10,858
- Construction Business 659
Aggregate Net Present Value 48,084
Fair Value (Rp/share) 6,625
Source: IndoPremier
Current Market Cap. 42,459
Upside (Downside) Potential (%) 11.70
Source:IndoPremier
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JSMR Re-initiating coverage
We use multi-staged sum of part valuation (SOTP) methodology that enables asset-by-asset valuation to account for their specific business cycle. Our general risk assumption includes the cost of equity of 14.5% which results from a risk-free rate of 8% and equity risk premium of 6.5% and unlevered beta of 0.39 which is derived from the levered beta of 1.03 and D/E ratio of 1.6x. The calculation of unlevered beta is used for the input of project-specific risk assumption as we re-lever the beta by using project’s D/E to account for differing nature of leverage across projects. We then calculate each project’s cost of equity (Fig. 129) that will be used to discount the calculated future cash flows.
In calculating future cash flows attached in each of the project, we use free cash flows to the equity (FCFE) as reasoned by several things. First, each toll road project exhibits reasonably high EBITDA margin and thus should be able to service the interest payment without consistently booking negative FCFE. Second, the level of leverage on each project diminishes over time and the earnings visibility increases over time; as we previously lay out, toll road asset exhibits a fixed-income instrument in the longer term. After deriving project’s FCFE, we compute the attributable equity value to JSMR (Fig. 129) by taking out the minority interest portion. We sum it up and divided by share outstanding to derive the fair value per share of JSMR.
Our SOTP-derived fair price results of Rp6,625 per share offers an upside potential of 15% as we believe the current price only reflects 47% of the value of JSMR new toll road assets. Our target price implies a forward EV/EBITDA and P/E of 15x and 24x, which is reasonable given JSMR position as industry leader and prospective future synergy amongst JSMR toll roads that gives less earnings volatility and high profitability margin once expansion-cycle ceases.
Equity Relative Valuation
Fig. 130: Trailing P/E Band Fig. 131: Forward P/E Band
40 45
40 35 35 30 30 25 25
20 20
15 15
10 10 5 5 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
Source: Bloomberg, IndoPremier Source: Bloomberg, IndoPremier
Fig. 132: Trailing EV/EBITDA Band Fig. 133: Forward EV/EBITDA
20 18 18 16 16 14 14 12 12
10 10
8 8
6 6
4 4 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
Source: Bloomberg, IndoPremier Source: Bloomberg, IndoPremier
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JSMR Re-initiating coverage
Current stock valuation is also attractive which trades at trailing and forward P/E of 19.7x and 20.3x (vs. 10-yr average P/E of 21x and 20x), respectively. Perhaps, the more appropriate measure of earnings multiple is EV/EBITDA as JSMR is currently on the expansion-cycle and underlying net earnings performance is disrupted by interest expenses. Trailing and forward EV/EBITDA measures at 12.2x and 10.6x that are a little below its 10-yr average EV/EBITDA of 12.2x and 10.9x, respectively. Meanwhile, EV/km (concession owned) measures across emerging Asia peers suggest that current share valuation is fairly valued.
Fig. 134: EV per km (concession owned) of Developing Asian Peers
12.0 10.7 9.9 10.0
8.0
6.0
3.5 4.0 3.1 2.7 2.6 2.0 0.4 0.2 - NusantaraTrans Kota WCE Noida Toll Jasa Citra IL&FS MEP Infra Infra Holdings Marga Marga Transport
Series1 Series2
Source: Bloomberg, Company Presentations,IndoPremier
Peer Comparison of profitability margins and earnings growth
The profitability measures across regional peer suggest that JSMR fared reasonably well in terms of profitability margin. In terms of EBITDA margin, JSMR ranks the second highest in emerging Asia in 2018 which lags behind Lingkaran Trans Kota, a Malaysian toll road company. However, we think that JSMR is the best performing company in terms of EBITDA margin as JSMR and Lingkaran Trans Kota are not comparable. Lingkaran Trans Kota holds only two toll road concessions with total length of 67km while JSMR has 33 concessions in hand with total length of 1,527km. In terms of net margin, JSMR ranks fourth. In this case, all three companies ranked above JSMR (in net margin) operate a relatively short toll road concession (Lingkaran Trans Kota: 67 km, Bangkok Expressway: 115 km, and Nusantara Infrastructure: 29km). We also notice that these company are not in the expansion cycle so their net earnings are not disrupted by huge interest expenses as JSMR is currently facing.
Fig. 135: Peer Comparison – EBITDA Margin in 2018 (%) Fig. 136: Peer Comparison – Net Margin in 2018 (%)
100.0 50.0 88.0 45.8 90.0 45.0 80.0 40.0 70.0 34.1 59.4 35.0 60.0 53.6 49.6 30.0 50.0 42.8 25.0 23.0 22.1 40.0 34.1 19.8 28.6 20.0 30.0 15.0 20.0 10.0 10.0 5.0 2.0 2.0 - Lingkaran Jasa Marga Bangkok IL&FS Nusantara MEP Infra Citra Marga - Trans Kota Expressway Transport Infra Lingkaran Bangkok Nusantara Jasa Marga Citra Marga IL&FS MEP Infra Trans Kota Expressway Infra Transport Developers
Source: Bloomberg, IndoPremier Source: Bloomberg, IndoPremier
The return on asset and equity of JSMR is relatively well. We present the data on the length of toll road concession owned (Fig. 134; RHS) where we can see that all company that carry higher ROAA and ROAE measures have significantly fewer concession assets. Thus, the asset and equity amount should also be lower and their ROAA and ROAE are biased upward when comparison on these companies with JSMR is conducted.
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Fig. 137: Peer Comparison – ROAA in 2018 (%) Fig. 138: Peer Comparison – ROAE in 2018 (%)
12.0 40.0 10.3 2,550 2,500 10.0 35.0 33.7 2,000 8.0 30.0 26.3 6.1 1,526 1,500 6.0 5.3 25.0 4.4 3.9 20.0 1,000 4.0 16.0 15.0 12.0 11.6 2.0 1.1 500 10.0 7.8 0.2 160 115 - 67 29 - 5.0 Lingkaran Citra Marga Bangkok Nusantara Jasa Marga MEP Infra IL&FS 1.4 Trans Kota Expressway Infra Developers Transport - ROAA (%) Asset Length (km) - RHS MEP Infra Lingkaran Bangkok Jasa Marga Citra Marga Nusantara IL&FS Developers Trans Kota Expressway Infra Transport
Source: Bloomberg, IndoPremier Source: Bloomberg, IndoPremier
In the two figures below Fig, 138-139), we compare historical revenue and EBITDA growth of toll road operators in the past three years (2015-2018). In terms of revenue growth, JSMR catered relatively similar growth as its Indian counterparts at 9.3%. Meanwhile, JSMR’s EBITDA growth of 12.7% places the company above Malaysian and Thailand major toll road operators which suggest that Indonesian toll road might run more efficient operational activity. Though, it is still below IL&FS Transport and Citra Marga as they have operated their existing assets for long time with occasional expansion activity. Thus, the operating expenses should be lower and makes their EBITDA growth perched above JSMR that witnessed higher operating expenses to accommodate its new toll road additions. In sum, given JSMR’s expansion cycle and extensive toll road network, its profitability margin and earnings growth performance should be considered as competitive in emerging Asian countries.
Fig. 139: Peer Comparison – Revenue Growth (%, 3-yr CAGR) Fig. 140: Peer Comparison – EBITDA Growth (%, 3-yr CAGR)
35.0 33.1 25.0 22.7 30.0 20.0 18.1
25.0 15.0 12.7
20.0 10.0 8.3 8.1 5.9 15.0 5.0 12.1 11.4 9.4 9.3 - 10.0 7.0 IL&FS Citra Marga Jasa Marga Bangkok Lingkaran Nusantara MEP Infra 6.0 (5.0) Transport Expressway Trans Kota Infra Developers 5.0 (10.0) - Citra Marga Bangkok MEP Infra IL&FS Jasa Marga Lingkaran Nusantara (15.0) Expressway Developers Transport Trans Kota Infra (16.3) (20.0)
Source: Bloomberg, IndoPremier Source: Bloomberg, IndoPremier
Sensitivity Analysis
Our last sections deals with sensitivity analysis to see the impact of change in some important income statement items to our FY19F earnings performance. We mainly consider four earnings-related variable to be put in the sensitivity tests which are traffic, tariff, operating expenses, and financial expenses. We subsequently measure their respective impact on EBITDA, pre-tax profit, and net profit in FY19F. We also provide the sensitivity analysis on the introduction of step-up loans at subsidiary-level, the hybrid debt instrument which combines zero-coupon bond with conventional loans, and asset securitization on its matured toll road assets.
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JSMR Re-initiating coverage
Fig. 141: Sensitivity Tests on Our Critical Revenue and Cost Drivers
The Impact on FY19F Figure of
Revenue Drivers EBITDA Pre-Tax Net Profit i. All Traffic -5% -8.2% -21.2% -19.3% ii. Toll Road Tariff: - All Tariff - 5% -8.2% -21.2% -19.3% - Matured Toll Tariff -5% -6.2% -16.1% -14.7% - Trans Java Toll Tariff -5% -4.7% -12.3% -11.2%
Cost Drivers i. Toll Operating Expenses +5% -2.9% -7.5% -6.8% ii. Loan Rate +100bps 0.0% -7.1% -6.5% Source: Indo Premier Estimates
Our analysis begins with the sensitivity of JSMR total traffic to EBITDA/pre-tax/net profit where we can see the traffic reduction as much as 5% on all JSMR toll roads results to a drop as much as 8.2%/21.2%/19.3% in FY19F. The result is symmetrical to the change in the tariff. We would also like to test the change in earnings when we reduce the tariff on JSMR matured toll road assets in which we include Jakarta – Cikampek, Jakarta – Tangerang, Jakarta Inner Ring Road, Jakarta Outer Ring Road, Jakarta – Bogor – Ciawi, Purbaleunyi, and Surabaya – Gempol in the list. The drop in EBITDA/pre-tax/net profit measured at 6.2%/16.1%/14.7%.
Next, we test the tariff reduction on Trans Java toll roads which are often subject to the government intervention of giving temporal discount during Lebaran season. Our Trans Java toll roads consist of Jakarta – Cikampek, Jakarta – Tangerang, Jakarta Inner Ring Road, Elevated Jakarta – Cikampek II, Purbaleunyi, Palikanci, Semarang – Solo, Surabaya – Mojokerto, Gempol – Pandaan, Gempol – Pasuruan, and Pandaan – Malang. This causes a reduction of EBITDA/Pre-Tax/Net Profit by 4.7%/12.3%/11.2%.
We then hike toll operating expenses by 5% and hold other variables constant. The result is EBITDA/Pre-tax/Net Profit decreases by 2.9%/7.5%/6.8%. Lastly, the increase in the loan rate at both parent- and subsidiary-level decreases pre-tax and net profit decline by 7.1% and 6.5%, respectively. We also explore the possibility of several creative financing scheme laid out by management and its impact on our earnings forecast. We briefly introduce the alternative financing that had been put in the place beforehand.
Brief introduction on alternative financing
As we noticed, JSMR has been undergoing a massive expansion over its toll road network across region. This poses several challenges for JSMR. The toll road construction requires huge investment in which the funding is frequently secured by debt instrument. This create significant leverage on JSMR whose D/E ratio stands at 1.7x in FY18 (with 3-yr CAGR FY15- 18A of 16% on its toll road length) vs. D/E ratio of 1.3x in FY15 (with 3-yr CAGR FY15-18A of 10% on its toll road length). SOE contractors have also borne a brunt of running a negative cash flows and significantly higher leverage. The company and government have put an effort to solve these issues ranging from the introduction of land capping at government-level to contractor pre-financing scheme at company-level.
The real issue brought to the table is how to run a course of sustainable expansion without imposing a leverage on both government and companies involved in the matter. Recently, this problem was solved by the alternative financing scheme which enables the toll road operators to raise funding by temporal asset securitization and deconsolidation as a means of raising fresh funds to finance the new toll roads expansion. There are two treatments to this matter. JSMR had introduced future revenue-backed securities (FRBS) where it promises pre-specified amount of revenue to be reserved solely for the payment to FRBS investors. Another portion of revenue is then booked into JSMR’s income statement as usual. This allows JSMR to raise a fresh fund without fully sacrificing the revenue stream.
JSMR had also issued closed-end funds (RDPT) and quasi-equity financing scheme (D-INFRA). JSMR’s toll road asset is set aside as the underlying asset whose income stream is then used to service the interest payment to the investors. On both RDPT and D-INFRA, the assets are
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JSMR Re-initiating coverage
fully deconsolidated from JSMR balance sheet and hence the attributable revenue stream is virtually lost. The assets and income streams are temporarily accounted investment in associate and income from associate. The selected asset to be securitized happened to be the newly-toll road with high demand feasibility on its early stage. JSMR opted to use Gempol – Pandaan as D-INFRA’s underlying assets. Solo – Ngawi, Ngawi – Kertosono, and Semaran – Batang toll road were securitized for RDPT issuance.
This course gives some benefits to toll road operators. First, as mentioned, it enables the operators to gain fresh funds without imposing a leverage on its book. Second, it allows the toll road operators to avoid booking a loss in the early period post the toll road construction completion on the income statements. Third, it enables the deleveraging at project-level. This is especially true with RDPT and D-INFRA instrument that allows the associated subsidiary to conduct a right issuance as to meet the targeted raised funds and hyped demand appetite for investor seeking an exposure on utilities sector. The valuation on the right issuance has been highly favorable as D-INFRA and RDPT’s underlying assets are valued at P/B of 2.3x and 1.9x, respectively, which emphasizes that JSMR’s toll roads have a marketability aspect. Fourth, it gives JSMR leniency to manage earnings expectation better as D-INFRA instrument is being equipped by call option for JSMR and put option for the investor. This embedded options give a sense of flexibility for JSMR to time the earnings on the securitized asset only when it has passed the break-even period. In addition,the instruments accommodate the group of investors who wish to exit given their limited investment horizon. The investors also enjoy a final tax of 0.1% on D-INFRA (vs. 25% corporate tax). We provide the detail on calculation as well as the feature of RDPT and D-INFRA on Appendix 2 and 3, respectively.
Sensitivity analysis on possible future JSMR’s creative financings.
JSMR indicated an introduction of three creative financings to optimize its cost of debts in the foreseeable future. We unveil the feature, give the description of the implication of assuming this type of financing, and quantify the effects on JSMR’s earnings in forecasted periods.
Step-up Loan
First, it would introduce a step-up loanwith the loan rate of 8.5% (the high-end figure of cost of debt at parent-level) for the first three years and 10%-11% thereafter. This financing scheme is particularly reasonable as newly-built toll road assets break even at EBITDA level for the first three to five years, in average. The company indicated that sharia banks are the party that proposes this scheme with the purpose of loan portfolio rebalancing due to the nature of toll road industry that gives a less risky exposure and this type of loans gives the banks a diversification benefit at the cost of having a slight spread over its interest margin. Our sensitivity analysis reveals that JSMR’s pre-tax profit to raise about 20%/28%/35% in FY19F/20F/21F from our base-case. Meanwhile, JSMR’s net profit to increase by 18%/26%/32% in FY19F/20F/21F from our base-case. JSMR’s overall ICR should also increase to 1.9x/1.7x/2.1x in FY19F/20F/21F (vs. our base-case at 1.7x/1.5x/1.7x).
Hybrid Zero-Coupon Bond
Second, they have an interest on issuing hybrid zero-coupon bonds and would like to simulate on its Bali toll road. Subsidiary would initially refinance the existing loans with this instrument. The total amount of loan outstanding in this instrument is then divided into two portion. The first portion, as much as 60% of total loan amount, will be in the form of conventional loan whose rate is set to equal with the existing’s loan rate. The interest on this portion will only be paid on the sixth year to its maturity at tenth year. The second portion, as much as 40% of total loan amount, is then packaged as zero-coupon bonds where the interest are paid in the lump sum with the principal on the fourth years. Hybrid zero-coupon bond benefits JSMR in the same way as step-up loan that is to hinder paying interest at the inception of toll road operation. Hence, this instrument relieves the cash flow burden and allows the subsidiary to manage its EBITDA performance better. We believe the highly-leveraged toll road assets should see the application of this financing instrument in which we select five potential toll roads for the inclusion on our sensitivity analysis, namely Elevated Jakarta- Cikampek, Semarang – Solo, Nusa Dua – Benoa, Medan – Tb. Tinggi, and Balikpapan – Samarinda. Our sensitivity analysis suggests that pre-tax should increase by 29%/49%/52% in FY19F/20F/21F while net profit should rise about 27%/44%/48% in FY19F/20F/21F. JSMR’s overall ICR should also increase to 2.1x/2.0x/2.5x in FY19F/20F/21F (vs. our base-case at 1.7x/1.5x/1.7x).
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Asset Securitization
JSMR opens for the possibility of other asset securitizations. It considers Prof. Dr. Ir. Sedyatmo, Jakarta Outer Ring Road (JORR), and Jakarta – Tangerang toll road. This instrument will be typical to previous asset securitization. This product has two tranches. The senior tranche will be graded by investment agencies which we think should be rated on par with JSMR’s credit rating. The junior tranche is non-graded tranche with JSMR is likely to be the stand-by buyer to show the creditworthiness of the product. In our sensitivity analysis, we assume ROI of 8% on the securitized asset and 1% premium (of the total raised funds) to the holder. Our calculation reveals that interest expenses will be 18% higher (from our base-case) to Rp3.7tn and pre-tax income should reduce by 18% to Rp1.9tn in FY19F. ICR also gauged lower at 1.5x (from 1.7x). In turn, JSMR will raise Rp8tn and project’s WACD should hover lower at 5.5%-5.9% level (from 8.3% in our base-case).
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JSMR Re-initiating coverage
Appendix 1: The chronological order of toll road construction completion in 2019
Fig. 142: Timeline of Project Completion in FY2019F
Month of Completion Toll Roads Majority Shareholder Region Section or Package January to April Bakauheni - Terbanggi Besar Hutama Karya S. Sumatera 1 - 4 Medan - Tebing Tinggi Jasa Marga N. Sumatera 7 Medan - Binjai Hutama Karya N. Sumatera Pasuruan - Probolinggo Waskita Toll Road E. Java 1 - 3 Pandaan - Malang Jasa Marga E. Java 1 - 4 May Cinere - Jagorawi Trans Lingkar Kita Jaya W. Java 2 June Terbanggi Besar - Kayu Agung Hutama Karya S. Sumatera Kunciran - Serpong Jasa Marga W. Java 2 Cimanggis - Cibitung Waskita Toll Road W. Java 1 Cibitung - Cilincing Waskita Toll Road W. Java 1 - 2 Kayu Agung - Betung Sriwijaya Markmore S. Sumatera 1 Pandaan - Malang Jasa Marga E. Java 4 July Balikpapan - Samarinda Jasa Marga E. Borneo 1 - 5 Cinere - Serpong Jasa Marga W. Java 1 August Krian - Legundi - Bundar - Manyar Waskita Toll Road E. Java 2 - 3 September Cileunyi - Sumedang - Dawuan Citra Marga (CMNP) W. Java 2 - 3 Bekasi - Cawang - Kp. Melayu Waskita Toll Road G. Jakarta 1A, 2A Kunciran - Serpong Jasa Marga W. Java 1 Depok - Antasari Citra Marga (CMNP) W. Java 2 October 6 Jakarta Inner Toll Road Jaya Real Property G. Jakarta Jakarta - Cikampek II Elevated Jasa Marga G. Jakarta Manado - Bitung Jasa Marga N. Sulawesi 1 - 2A Cinere - Serpong Jasa Marga W. Java 2 November Cengkareng - Kunciran Jasa Marga G. Jakarta 1 - 4 Cibitung - Cilincing Waskita Toll Road W. Java 3 - 4 December Krian - Legundi - Bundar - Manyar Waskita Toll Road E. Java 1 Pekanbaru - Dumai Hutama Karya C. Sumatera 1 - 2 Medan - Binjai Hutama Karya N. Sumatera 1 Pandaan - Malang Jasa Marga E. Java 5 Cimanggi - Cibitung Waskita Toll Road W. Java 1B - 2A Serang - Panimbang Wijaya Karya W. Java 1 Source: Bisnis Indonesia, IndoPremier
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Appendix 2: The feature and mechanics of JSMR’s closed-end fund (RDPT)
Fig. 143: The Mechanics of Jasa Marga's Closed-end Fund (RDPT)
Jasa Marga Solo Ngawi (JSN) Pre-DINFRA Post-Divestment Post-Right Issuance
Equity
Jasa Marga 802 535 535
Waskita Toll Road 536 536 535
Lintas Marga Jawa - SPE - 267 267
Total Equity 1,338 1,338 1,337
Stake (%)
Jasa Marga 60 40 40
Waskita Toll Road 40 40 40
Lintas Marga Jawa - SPE - 20 20
Ngawi Kertosono Jaya (NKJ)
Equity
Jasa Marga 585 390 390
Waskita Toll Road 370 370 390
Lintas Marga Jawa - SPE 195 195
Total Equity 955 955 975
Stake (%)
Jasa Marga 61 41 40
Waskita Toll Road 39 39 40
Lintas Marga Jawa - SPE - 20 20
Jasa Marga Semarang Batang (JSB)
Equity
Jasa Marga 80 53 68
Waskita Toll Road 53 53 68
Lintas Marga Jawa - SPE 27 34
Total Equity 134 134 170
Stake (%)
Jasa Marga 60 40 40
Waskita Toll Road 40 40 40
Lintas Marga Jawa - SPE - 20 20
Step 1. Stake Divestment on JSN, NKJ, JSB
Total Book Value 489
Divestment Proceed 913
Implied P/B (x) 1.87
One-off Gain, Gross 424
One-off Gain, Net 318
Step 2. Right Issuance
Additional Paid-in-Capital (at Book Value) 57
Divestment Proceed 106
Cash Inflow - JSMR 1,019
One-off Gain - JSMR 318
Source: JSMR, IndoPremier
Refer to Important disclosures in the last page of this report 51
JSMR Re-initiating coverage
JSMR issued an infrastructure closed-end fundin April 2018 with the total proceed of Rp3tn. The important features on this instrument are listed as follows:
The total raised fund amounts to Rp3tn of which Rp1.2tn will be used for the stake acquisition (20%) on the underlying asset and the remaining Rp1.8tn is set aside for future capital injection as the underlying asset on this instrument was still on the construction progress. The underlying asset of RDPT is the minority stake (20%) on each of three JSMR’s toll road in Central Java, namely Solo – Ngawi ,Ngawi – Kertosono, and Semarang – Batang. This instrument offers a fixed ROI of 9.5% p.a and an embedded put option which gives a right to investor to redeem 7% - 12% of total RDPT current funds per annum for the first four years. At the fifth year, the investor could redeem the remaining uncalled portion in lump sum payment. The investors opt for not exercising the option after the fifth year will remain as the minority shareholder in the underlying assets.
This instrument exhibits a equity-alike with an embedded option investment which gives the investor a leniency to adjust with their investment horizon. JSMR is also benefited by this issuance as the put option for investor gives the chance of JSMR to regain the ownership over the underlying assets. The underlying assets are previously owned by two investors, namely JSMR (60%) and Waskita Toll Road (40%). Post RDPT issuance, the share ownership composition will include Jasa Marga (40%), Waskita Toll Road (40%), and SPV (20%).JSMR also booked Rp1tn worth of cash inflows and Rp318bn of net one-off gain.
Refer to Important disclosures in the last page of this report 52
JSMR Re-initiating coverage
Appendix 3: The feature and mechanics of JSMR’s quasi- equity financing (D-INFRA)
Fig. 144: The Mechanics Jasa Marga Pandaan Toll's (JPT) Balance Sheet
Pre-DINFRA Post-Divestment Post-Right Issuance Interest-bearing Debt
Bank Loans
- Working Capital Loans 28 28 - - Syndicated Loans 846 846 - - Other Loans 38 38 - Shareholder Loan 154 154 - Medium-Term Notes (MTN) - - 800 Total Debt 1,066 1,066 800
Equity (Book Value at Rp1/share)
Jasa Marga 461 252 252 Regency Government of Pasuruan 39 39 39 PT Trans Optima Luhur (Special Purpose Entity) - 209 339 Total Equity 500 500 630
Stake Ownership (%)
Jasa Marga 92% 50% 40% Regency Government of Pasuruan 8% 8% 6% PT Trans Optima Luhur (Special Purpose Entity) 0% 42% 54%
D/E Ratio (x) 2.1 2.1 1.3 Interest Coverage Ratio (x) 2.2 2.2 1.5
Interest Expenses 126 126 84 EBIT 57 57 57
Step I. Divestment Total (Rpbn)
Book Value (209mn shares, Rp1/share) 209
Divestment Proceed at P/B of 2.3x 481
One-off Gain, Gross 272
One-off Gain, Net 204
Step II. Right Issuance to Dilute Existing Shareholder (JSMR and Pasuruan Government) Book Value of 130mn shares (Implied) 130 Divestment Proceed at P/B of 2.3x 300
Step III. Debt Repayment Existing Debt Outstanding 1,066 Targeted Debt Oustanding 800 Debt Refinancing 266 Cash Inflow - JSMR (from JPT) 747 One-off Gain - JSMR 204
Source: JSMR, IndoPremier
Refer to Important disclosures in the last page of this report 53
JSMR Re-initiating coverage
JSMR launched another creative financing in May 2019 with the total proceed of Rp1tn. The important features on this instrument are listed as follows:
The total raised fund is Rp1tn whose allocation is divided into three parts. First allocation of Rp480bn will be used for acquiring the ownership in the underlying asset. The second allocation of Rp300bn was used to absorb the requested additional capital (right issue) of the project owner of underlying asset. Third allocation was then allocated for refinancing on project’s debt The underlying asset of D-INFRA is Gempol – Pandaan toll road. This instrument offers a fixed ROI of 9% p.a and an embedded put option which gives a right to investor to redeem 10% of total D-INFRA funds per annum for the first four years. At the fifth year, the investor could redeem the remaining uncalled portion in lump sum payment. The investors opt for not exercising the option after the fifth year will remain as the minority shareholder in the underlying assets.
The underlying assets are previously owned by two investors, namely JSMR (92.2%) and local province (7.8%). Post RDPT issuance, the share ownership composition will include JasaMarga (40%), local province (6%), and SPV (54%). JSMR also booked Rp747bn worth of cash inflows and Rp204bn of net one-off gain.:
Refer to Important disclosures in the last page of this report 54
JSMR Re-initiating coverage
Year To 31 Dec (RpBn) 2017A 2018A 2019F 2020F 2021F
Income Statement
Net Revenue 9,080 9,970 10,527 12,061 13,752 Cost of Sales (3,772) (4,053) (4,066) (4,311) (4,615) Gross Profit 5,308 5,918 6,461 7,750 9,137 SG&A Expenses (1,152) (1,325) (823) (895) (865) Operating Profit 4,155 4,592 5,638 6,855 8,272 Net Interest (1,033) (1,569) (2,931) (4,359) (4,615) Forex Gain (Loss) 0 0 0 0 0 Others-Net 128 187 (324) 194 (484) Pre-Tax Income 3,250 3,210 2,383 2,690 3,172 Income Tax (1,157) (1,174) (596) (673) (793) Minorities 107 165 173 191 210 Net Income 2,200 2,202 1,961 2,209 2,589
Balance Sheet
Cash & Equivalent 7,030 6,087 4,377 5,534 5,191 Receivable 11,547 5,550 7,031 8,363 9,509 Inventory 134 41 205 225 248 Other Current Assets 275 136 209 282 352 Total Current Assets 18,987 11,814 11,821 14,405 15,300
Fixed Assets - Net 57,125 64,208 81,524 90,009 99,022 Goodwill 42 42 42 42 42 Non Current Assets 2,273 3,195 3,354 3,522 3,698 Total Assets 79,313 82,419 99,933 111,489 121,924
ST Loans 1,779 2,348 814 895 940 Payable 1,289 1,098 0 1,451 1,621 Other Payables 17,779 21,205 27,853 33,174 37,218 Current Portion of LT Loans 4,151 6,431 9,019 11,352 12,279 Total Current Liab. 24,998 31,081 38,960 46,873 52,057
Long Term Loans 31,062 28,125 36,075 37,840 40,931 Other LT Liab. 4,894 3,013 3,164 3,322 3,488 Total Liabilities 60,954 62,220 78,198 88,035 96,476
Equity 6,973 7,021 7,021 7,021 7,021 Retained Earnings 8,125 9,887 11,259 12,805 14,617 Minority Interest 3,262 3,290 3,455 3,628 3,809 Total SHE + Minority Int. 18,359 20,199 21,735 23,454 25,448 Total Liabilities & Equity 79,313 82,419 99,933 111,489 121,924 Source: JSMR, IndoPremier
Refer to Important disclosures in the last page of this report 55
JSMR Re-initiating coverage
Year to 31 Dec 2017A 2018A 2019F 2020F 2021F
Cash Flow
Net Income (Excl.Extraordinary&Min.Int) 2,094 2,036 1,787 2,018 2,379 Depr. & Amortization 0 0 0 0 0 Changes in Working Capital 9,292 9,408 5,167 4,132 3,031 Others 1,244 1,645 3,193 4,523 4,800 Cash Flow From Operating 12,629 13,090 10,147 10,673 10,211 Capital Expenditure (19,063) (8,005) (17,476) (8,653) (9,189) Others (642) (1,990) 362 (42) 4 Cash Flow From Investing (19,704) (9,995) (17,114) (8,694) (9,185) Loans 8,933 (89) 9,004 4,181 4,062 Equity 0 0 0 0 0 Dividends (567) (440) (588) (663) (777) Others 1,039 (3,276) (3,048) (4,347) (4,666) Cash Flow From Financing 9,405 (3,805) 5,367 (828) (1,381) Changes in Cash 2,330 (710) (1,599) 1,150 (355)
Financial Ratios
Gross Margin (%) 58.5 59.4 61.4 64.3 66.4 Operating Margin (%) 45.8 46.1 53.6 56.8 60.2 Pre-Tax Margin (%) 35.8 32.2 22.6 22.3 23.1 Net Margin (%) 24.2 22.1 18.6 18.3 18.8 ROA (%) 3.3 2.7 2.2 2.1 2.2 ROE (%) 12.7 11.4 9.4 9.8 10.6 ROIC (%) 5.2 4.7 4.0 3.7 4.1
Acct. Receivables TO (days) 0.0 0.0 0.0 0.0 0.0 Acct. Receivables - Other TO (days) 398.5 313.0 218.1 232.9 237.2 Inventory TO (days) 34.1 46.3 33.1 20.1 19.5 Payable TO (days) 124.3 107.5 106.5 115.4 121.5 Acct. Payables - Other TO (days) 284.7 224.9 138.3 158.1 166.9
Debt to Equity (%) 201.5 182.7 211.2 213.6 212.8 Interest Coverage Ratio (x) 0.3 0.4 0.6 0.7 0.6 Net Gearing (%) 164.1 153.3 191.8 190.6 193.0
Source: JSMR, IndoPremier
Refer to Important disclosures in the last page of this report 56
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INVESTMENT RATINGS BUY : Expected total return of 10% or more within a 12-month period HOLD : Expected total return between -10% and 10% within a 12-month period SELL : Expected total return of -10% or worse within a 12-month period
ANALYSTS CERTIFICATION. The views expressed in this research report accurately reflect the analysts personal views about any and all of the subject securities or issuers; and no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the report.
DISCLAIMERS This research is based on information obtained from sources believed to be reliable, but we do not make any representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendations contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is not and should not be construed as an offer or a solicitation of an offer to purchase or subscribe or sell any securities. PT. Indo Premier Securities or its affiliates may seek or will seek investment banking or other business relationships with the companies in this report.