Jasa Marga (JSMR IJ)

Debunking JTT divestment payment delay risks and earnings impact from minority interest

 

  • Based on our analysis, JSMR can afford to fulfill its ST obligation, even if the second-term payment of JTT divestment is delayed.
  • We estimate traffic growth could offset the rising minority impact on net profit in FY25F, but deleveraging is needed to aid FY26F earnings.
  • We reiterate Buy rating with a TP of Rp 6,500. JSMR still trades below its historical multiplier despite delivering better ROA and EBITDAM.

 

Investors’ concerns on JSMR: capex, deleveraging, and higher minority interest

In our initiation report on 12th Aug24, our positive view on JSMR is predicated on the following drivers: 1) Special tariff rate adjustments (>20%) for 8 toll roads in FY23/24; 2) Bi-annual tariff adjustment in FY25 that would affect ~70% of JSMR traffic (majority are mature and key toll roads with relatively inelastic demand); 3) JTT divestment proceeds to allow JSMR to deleverage, and amid expectation of lower interest rate, JSMR will see lighter cycle capex in FY24/25 than previous cycle (Rp 5-6tr vs peak at Rp 24-28tr/year); 4) The stock trades at 9x EV/EBITDA, lower than FY17/18 level of 12x EV/EBITDA despite currently having ~200-500 bps higher EBITDA and ~30 bps higher ROA. While we maintain a positive outlook, investors have expressed concerns on the following: 1) Potential delays in cash proceeds from JTT divestment, which could affect JSMR's ability to meet its ST obligations; 2) Deleveraging not occurring; 3) Negative earnings impact from minority interests.

 

Scenario analysis result: not as bad as investors fear

We conducted several scenarios to assess whether JSMR can manage a delay in cash delivery from the JTT divestment and to evaluate the impact of rising minority interest on earnings. Based on our calculations, the JTT divestment is necessary for JSMR to meet its ST debt and capital expenditure schedule this year. However, the first cash payment (~52% of total) should suffice for immediate obligations. The full payment, expected in the second stage by Dec24, would provide an additional buffer needed for deleveraging (see Exh. 1). Separately, we estimate that volume growth alone is sufficient to offset the increased minority interest impact caused by JTT divestment (see Exh. 2). However, for FY26F, both deleveraging and interest rate cuts will be necessary to counter the higher minority interest, as revenue from JTT is projected to grow, particularly from non-mature Java toll roads, at approximately 12% yoy.

 

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

We reiterate our Buy rating and a TP of Rp 6,500. We believe concerns on JTT payment schedule and rising minority should be mitigated, based on our scenario analysis. JSMR is currently trading at 8.8x EV/EBITDA, -1 std dev of 7-year mean. Downside risks: 1) Slower traffic growth on new Transjava toll roads; 2) Changes in government leading to a contrasting capex schedule.

 

 

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