Jasa Marga (JSMR.IJ Rp 4.920; BUY TP Rp 6,500) Debunking Investors’ Concerns, Part Deux: Expect Interest expense to Remain Manageable

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Jasa Marga (JSMR IJ)

Debunking Investors’ Concerns, Part Deux: Expect Interest expense to Remain Manageable

We expect JSMR’s interest expense to be at Rp 3.8tr-4.1tr in FY25F, incl. additional interest from new tolls, with upside if the lending rate drops.
Strong revenue momentum will still bring a positive increment to JSMR’s FY25F net profit, even under our most extreme scenario.
We think concerns about JTT payment delay and higher interest burden are overdone, and thus, we reiterate our Buy rating with a TP Rp 6,500.

Expect interest expense to remain manageable at ~Rp4tr level until FY25F

In addition to concerns on JTT proceed addressed in our previous report, we also receive questions regarding JSMR interest expense in upcoming years. Based on our analysis, assuming the completion of 5 tolls roads in FY24F-FY25F, we expect these new projects to incur ~Rp720bn additional interest expense in FY25F (see exhibit 1). Combined with our expectations of deleveraging and lower lending rate, we estimate interest expense to be at Rp4.4tr/Rp3.8tr in FY24F/FY25F. Even under our most extreme case (Scenario 2 in Exh.3, with no deleveraging and lending rate cut), we estimate FY25F interest expense to reach Rp 4.1tr (8% higher than base case), which would lead to 21% core profit growth in FY25F (vs 33% in our base case). We find that this ample growth room is supported by: 1) Approximately ~Rp9tr short term debt due in FY24F and no urgent need for refinancing; 2) High revenue growth due to special tariff adjustment in FY24F and toll tariff adjustment for ~70% JSMR traffic in FY25F.

Minority impact will not cause a drag on FY25F net profit

Continuing our scenario analysis in our prev. report, we further stretched our assumptions (Exh. 2 and 3). We revised down our assumptions, as we previously assumed Rp15tr in JTT proceeds, while actual proceed may only be Rp12tr, based on our latest check with management, and further apply discount for estimated fee and expenses. We also lower our deleveraging assumptions from Rp8tr to Rp6tr. In conclusion, we still find that rising minority will not have a negative impact on JSMR’s FY25F net profit. Lower deleveraging and proceeds (scenario 1) lead to a net increment of Rp687bn in FY25F net profit (37% lower than our base case). But even in our extreme scenario (scenario 3), JSMR would still deliver ~Rp352bn net increment NP without a tariff adjustment in FY25F. We await the final JTT calculation from management before revising our projections.

Reiterate our Buy rating and a TP of Rp 6,500

We reiterate our Buy rating and a TP of Rp 6,500, as we believe the concerns about JTT payment delay and interest burden are overdone. JSMR currently trades at 8.3x EV/EBITDA, -1 SD 7-year mean. Key risks: 1) Slower traffic on the new Transjava toll; 2) New government plans may lead to major capex change.

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