Traffic Volume is Key to Toll Road Business Continuity
As the largest toll road operator in Indonesia, PT Jasa Marga Tbk (JSMR) has managed to record an increase in traffic volume CAGR 4.50% p.a. (2012-2016). Throughout 1H17, JSMR successfully took in a 7.47% YoY increase in revenue, and net profit 9.79% YoY higher, supported by steeper toll revenues and a significant increase from its non-toll road businesses. With the opening of several new toll roads, it is expected that the increased traffic will be the main revenue stream support of toll road operator performance.
Still an Attractive Investment Destination
We assess that the toll road industry is an attractive industry, supported by several factors: 1) Acceleration of infrastructure construction by the government, driving the growth of the toll road business; 2) Potential to generate long-term recurring income and attractive returns; 3) Giving multiplier effect on allied businesses, thus spreading prosperity throughout society.
Land Acquisition and Funding Issues Still a Main Focus
Struggles over land acquisition and funding issues continue as the main challenges in the toll road business. Other than that, the feasibility of investing by taking into account IRR and payback period levels remains to be considered. Nevertheless, infrastructure development – especially toll roads – is sorely needed to increase the potential of the Indonesian economy. Therefore, cooperation between the government, SOE and private parties is needed to work out a scheme which ultimately is mutually beneficial.
OVERWEIGHT Outlook with JSMR as a Preferred Stock
We are being OVERWEIGHT for the toll road industry in Indonesia. We recommend JSMR, with a Target Price Rp6,350 which implies PE 24.68x FY17E or equivalent with P / E multiple -0.25STD (average 3-years P/E) and PBV 2.23x FY17E. We see that JSMR will be able to offer long-term prospects, supported by 1) Acceleration of toll road infrastructure development by Government, 2) Operation of new toll roads in FY17E that will potentially increase future toll revenues, 3) Robust funding strategy.
