Jasa Marga 26 June 2019 (JSMR IJ) BUY (Unchanged) JSMR Major Shareholders Government of Indonesia 70.0% BPJS Ketenagakerjaan 3.3% PT Taspen 2.2% Estimate Change; Vs. Consensus securitizing

Refer to Important disclosures in the last page of this report

StockData

Target price (Rp) Rp6,625

Prior TP (Rp) n/a

Shareprice (Rp) Rp5,800

Upside/downside (%) +14.2

Sharesoutstanding (m) 7,258

Marketcap. (US$ m) 3,096

Free float (%) 24.5

Avg. 6m dailyT/O (US$ m) 3.1

Price Performance

3M 6M 12M

Absolute (%) 13.6 40.0 42.4

Relative to JCI (%) 16.5 37.3 32.9

52whigh/low (Rp) 6,175 - 3,820

Major Shareholders

Government of Indonesia 70.0%

BPJS Ketenagakerjaan 3.3%

PT Taspen 2.2%

Estimate Change; Vs. Consensus

2019F 2020F

Latest EPS (Rp) 270 304

Vs. Prior EPS (%) - -

Vs. Consensus (%) 1.8 0.6

Source: Bloomberg

Willy Goutama

PT Indo Premier Sekuritas

[email protected]

+62 21 5793 1168

Poised on monetizing synergy cycle

Impetus for entire traffic growth lies on toll road interconnection.

The underlying earnings feature are both non-cyclical and lucrative.

Securitization is a keystone of weathering expansion adversity.

We re-initiate a coverage on JSMR with BUY rating and TP of Rp6,625.

Toll interconnectivity drives future traffic growth. Jasa Marga (JSMR) is an

Indonesian leading toll road company that operates 1,342km road and holds 33

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

capture the synergy on upcoming new subset of Trans Java toll roads, as our research

suggests toll road interconnectivity to be the main driver of traffic growth, with

elevated Jakarta – Cikampek to bring an extended effect to invigorate the overall traffic

growth in FY20F by latest. We forecast a modest growth on nation-wide JSMR traffic by

6.5%/7.2% in FY19F/20F.

Open-system to boost earnings. Recently, JSMR introduced an opened-system on its

highly dense toll road section in Tangerang (April 2017), Jagorawi (September 2017),

JORR (September 2018), and Cikampek (May 2019).This system should positively

affect JSMR in three aspects. First, open-system de-bottlenecks traffic and thus results

to higher traffic turnover. Second, it requires a one-time payment and thereby raising

operating efficiency due to lower gate operators. Third, it opens a room for biannual

tariff adjustment for several toll roadsthat sees an absence on this. Our analysis reveals

that the net effect of opened-system is positive despite a temporal traffic shrinkage.

This is due to inelastic demand profile across regions as implied by low mid-price

elasticity scoring at 0.05, 0.40, and 0.47 for JSMR’s Jakarta, Java excl. Jakarta, and ex-

Java region, respectively. The underlying earnings are also non-cyclical and lucrative as

suggested by JSMR’s stable EBITDA margin (60%-76%) in matured region (Jakarta);

this embodies a long-term prospect on JSMR’s newly-built assets.

Securitization benefit is pervasive across financial statements. Asset-based

securities (ABS) have several key benefits. First, it enables raising fresh fund by

securitizing new operating assets that exhibits demand merit, with a bonus of one-time

gain. Second, some ABS allow better earnings management as accounting treatment

requires earnings deconsolidation on the securitized asset. This benefit is particularly

pronounced in the securitization of newly-operated asset to avoid consolidating

negative earnings and cash flows in early periods. In addition, JSMR guided to

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

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.

Jasa Marga (JSMR IJ)

26 June 2019

Re-initiating coverage

BUY (Unchanged)

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

PER (x) 19.3 19.3 21.7 19.2 16.4

PBV (x) 2.2 2.0 1.9 1.8 1.6

Dividend Yield (%) 1.3 1.0 1.3 1.5 1.8

EV/EBITDA (x) 14.2 13.1 14.2 12.3 10.8

Source: JSMR, IndoPremier Share Price Closing as of : 24-June-2019

Equity |

Indonesia

| I

nfr

astr

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re

80

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100

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Jun-1

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Aug

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JSMR-Rebase JCI Index-Rebase

JSMR Re-initiating coverage

2 Refer to Important disclosures in the last page of this report

Fig. 1: Toll road interconnection to drive future traffic Fig. 2: Demand is less susceptible to tariff hike

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

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200

400

600

800

1,000

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2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F 2021F

Jakarta Java excl. Jakarta Ex-Java Traffic Growth (% yoy)

0.008

0.288

0.014 0.050

0.401 0.479

0.312

0.631

1.973

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

Jakarta Java Ex-Java

Low Mid High

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

-10%

-5%

0%

5%

10%

-15% 5% 25% 45% 65% 85%

Mar

ket

Gro

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e (%

)

Relative Market Share (%)

CMNP IJ

META IJ

JSMR IJ

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

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

5

10

15

20

25

30

35

40

45

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19

10.7 9.9

3.5 3.1

2.7 2.6

0.4 0.2

-

2.0

4.0

6.0

8.0

10.0

12.0

NusantaraInfra

Trans Kota WCEHoldings

Noida Toll JasaMarga

CitraMarga

IL&FSTransport

MEP Infra

Series1 Series2

Source: Bloomberg, IndoPremier Source: Bloomberg, Companies’ Presentation, IndoPremier



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.

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. 1: Indonesian Economic Structure Fig. 2: Real Investment-to-GDP steadily increases

61% 59% 56% 55% 56% 57% 57% 57% 58% 57% 57%

28% 31% 31% 31% 33% 32% 33% 33% 33% 32% 32%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

0%

20%

40%

60%

80%

100%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Consumption Government Spending

Investment Net Export and Stats. Discrepancy

Growth (% yoy) - RHS

0%

5%

10%

15%

20%

25%

30%

35%

-

2,000

4,000

6,000

8,000

10,000

12,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Real GDP (2010=100, Rptn) - LHS Real Investment (2010=100, Rptn) - LHS

Real Investment-to-GDP - RHS

Source: CEIC, IndoPremier Source: CEIC, IndoPremier

Fig. 3: Infrastructure Budget (Rptn) and Its Share (% GDP) Fig. 4: Infrastructure-related Ministerial Budget (Rptn)

79 76 86 114

146 156 155

256

317

401 410 415

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

-

50

100

150

200

250

300

350

400

450

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Infrastructure Budget - LHS Proportion (% of GDP)

31 30 2542

57 64 69

10795 102 105 102

13 13 12

16

2526

26

44

4043 44

38

5%

15%

25%

35%

45%

55%

0

20

40

60

80

100

120

140

160

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)

Source: CEIC, Indo Premier Source: CEIC, Indo Premier



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.

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. 5: The allocation of infrastructure budget Fig. 6: GFCF Composition and Its Growth

86% 82%70%

80% 84% 87% 82%69%

49%40% 41% 38%

10%

16%

29% 46% 46% 49%

0%

20%

40%

60%

80%

100%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Government Non-Government Village Funds Financing

74% 73% 73% 73% 75% 75% 75% 75% 74%

6% 6% 6% 6% 5% 5% 5% 5% 5%

6%

8%

10%

12%

14%

16%

0%

20%

40%

60%

80%

100%

2010 2011 2012 2013 2014 2015 2016 2017 2018

Bulding & Structure - LHS Vehicles - LHS

Other Fixed Capital Spending - LHS Growth (% yoy) - RHS


Fig. 7: Construction Output (% GDP) in Java Regions Fig. 8: Construction Output (% GDP) in Ex-Java Regions

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

13.0%

14.0%

2010 2011 2012 2013 2014 2015 2016 2017 2018

G. Jakarta W. Java C. Java E. Java

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

13.0%

2010 2011 2012 2013 2014 2015 2016 2017 2018

Sumatera Bali and NT Borneo Sulawesi




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%).

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. 9: Construction Nominal Output Growth (%, 8-yr CAGR) Fig. 10: Construction Real Output Growth (%, 8-yr CAGR)

9.6%

13.3%

9.8%

11.4%12.5%

11.6% 12.0%

14.7%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

G. Jakarta W. Java C. Java E. Java Sumatera Bali andNT

Borneo Sulawesi

Region Growth (%) Country Growth (%)

4.6% 8.4% 5.5% 6.2% 6.7% 7.1% 5.5% 8.6%

5.0% 4.9%4.3%

5.2%5.8%

4.6%

6.4%

6.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

G. Jakarta W. Java C. Java E. Java Sumatera Bali and NT Borneo Sulawesi

Region Growth (%) Country Growth (%) Implied Inflation Rate (%)


Fig. 11: Infra and Logistic Quality Performance Index by WB Fig. 12: Overall Logistical Performance Index by World Bank

2.8 2.5 2.5 2.9 2.7 2.9 2.8 2.5 2.9 3.2 3.0 3.1

45

6985

5673

54

92

9262

41

55

44

0

40

80

120

160

200

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2007 2010 2012 2014 2016 2018

Infrastructure Score Logistic Quality Score

Ranking - Infrastructure Ranking - Logistic Quality

3.0

2.8

2.9

3.1

3.0

3.2

0

15

30

45

60

75

90

2.5

2.6

2.7

2.8

2.9

3.0

3.1

3.2

2007 2010 2012 2014 2016 2018

LPI Score Ranking

Source: World Bank (WB), IndoPremier Source: World Bank (WB), IndoPremier



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.

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. 13: Transportation Output (% GDP) in Java Regions Fig. 14: Transportation Output (% GDP) in Ex-Java Regions

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

2010 2011 2012 2013 2014 2015 2016 2017 2018

G. Jakarta W. Java C. Java E. Java

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

2010 2011 2012 2013 2014 2015 2016 2017 2018

Sumatera Bali and NT Borneo Sulawesi


Fig. 15: Distribution of Transport Output Fig. 16: Sub Transport Output Growth (7-yr CAGR; 2010-17)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Railway Road Sea Air Others

10%

20%

30%

40%

50%

60%

70%

80%

90%

5%

7%

9%

11%

13%

15%

17%

19%

21%


Railway - LHS Road -LHS Sea - LHS Air -RHS




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.

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).

Fig. 18: Transport Nominal Output Growth (%, 8-yr CAGR) Fig. 19: Transport Real Output Growth (%, 8-yr CAGR)

15.4%16.3%

9.8%

13.6%

12.0%

13.7% 13.4%14.5%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%


Region Growth (%) Country Growth (%)

9.4% 7.7% 6.7% 7.1% 6.8% 6.2% 6.8% 8.0%

6.0%

8.6%

3.1%

6.6%

5.2%

7.5%

6.6% 6.6%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%


Region Growth (%) Country Growth (%) Implied Inflation Rate (%)




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.

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. 20: Hard Infra Spending, Debt, and Deficit (% of GDP) Fig. 21: Fiscal Revenue Profile

17%19% 19%

21%

18%

25%23%

25%24%

-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

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0%

5%

10%

15%

20%

25%

30%

35%

2010 2011 2012 2013 2014 2015 2016 2017 2018

Hard Infra Spending - LHS Debt - LHS CA Deficit - RHS

0%

10%

20%

30%

40%

50%

0%

5%

10%

15%

20%

2010 2011 2012 2013 2014 2015 2016 2017 2018

Fiscal Revenue (% of GDP) - LHS

Income Tax (% Revenue) - RHS

Tax Coverage (% of Working Population) - RHS


Fig. 22: Non-FI Debt Holding by Security and Maturity Fig. 23: Debt Issuance by Currency and Creditor’s Domicile

0%

20%

40%

60%

80%

100%

0%

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Ma

r-1

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v-1

0

Ma

r-1

1

Jul-

11

No

v-1

1

Ma

r-1

2

Jul-

12

No

v-1

2

Ma

r-1

3

Jul-

13

No

v-1

3

Ma

r-1

4

Jul-

14

No

v-1

4

Ma

r-1

5

Jul-

15

No

v-1

5

Ma

r-1

6

Jul-

16

No

v-1

6

Ma

r-1

7

Jul-

17

No

v-1

7

Ma

r-1

8

Jul-

18

No

v-1

8

ST Portion - LHS LT Portion - LHS Loan - RHS

Debt Securities - RHS Other Payables - RHS

35%

40%

45%

50%

55%

60%

65%

0%

20%

40%

60%

80%

100%

Mar

-10

Au

g-1

0

Jan

-11

Jun

-11

No

v-1

1

Ap

r-1

2

Sep

-12

Feb

-13

Jul-

13

Dec

-13

May

-14

Oct

-14

Mar

-15

Au

g-1

5

Jan

-16

Jun

-16

No

v-1

6

Ap

r-1

7

Sep

-17

Feb

-18

Jul-

18

Dec

-18

IDR-denominated Foreign-denominated

Domestic Creditor Foreign Creditor




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.

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

Fig. 24: The Proportion of Public and Private Debt (%) Fig. 25: Debt-to-GDP across Investment-grade Countries

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Mar

-10

Au

g-1

0

Jan

-11

Jun

-11

No

v-1

1

Ap

r-1

2

Sep

-12

Feb

-13

Jul-

13

De

c-1

3

May

-14

Oct

-14

Mar

-15

Au

g-1

5

Jan

-16

Jun

-16

No

v-1

6

Ap

r-1

7

Sep

-17

Feb

-18

Jul-

18

De

c-1

8

Public Debt Private Debt (Incl. FI and Non-FI)

0

10

20

30

40

50

60

70

80

Debt-to-GDP (%) Median (%)

Source: CEIC, IndoPremier Source: Bloomberg, Fitch Ratings, IndoPremier



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


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.



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.

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.

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

Fig. 30: 66 PSNs completed, 93 PSNs open partially in 3Q19 Fig. 31: Proportion of Priority Project




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.

Fig. 32: Issues Found in PSN Delivery as of December 2017 Fig. 33: Issues Found in PSN Delivery as of June 2018




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.

Fig. 35: The Product of Fiscal Reform Fig. 36: Alternative Funding (as of % Infra Budget) spiked

0%

2%

4%

6%

8%

10%

0

5

10

15

20

25

30

35

40

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



Fig. 37: AP offers stable cash inflows for private investor in financially unattractive project


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



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.

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. 38: Land Acquisition Timeline Fig. 39: Land Capping and Revolving Fund Scheme


Fig. 40: KPPIP mostly helps with preparation process Fig. 41: OBC – Decision Making for Funding Activity




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



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.

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

Fig. 45: Porter’s Five Forces on IndonesianToll Road Industry Fig. 46: BCG Matrix of IndonesianToll Road Industry

0

1

2

3

4

5

Bargaining Power ofSupplier

Bargaining Power ofBuyer

Thread of New EntrantsThread of Subtitute

Products

Degree of Competition

-10%

-5%

0%

5%

10%

-15% 5% 25% 45% 65% 85%

Mar

ket

Gro

wth

Rat

e (%

)

Relative Market Share (%)

CMNP IJ

META IJ

JSMR IJ

Source: IndoPremier Source:IndoPremier



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.

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.

Fig. 47: The Tariff Dynamic of Cawang – Pluit (JIRR) and JORR Fig. 48: The Tariff Dynamic of Inter-Province Toll Road

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

3Q17

4Q17

1Q18

JIRR (4-q rolling, yoy) JORR (4-q rolling, yoy)

Jakarta RCPI (12-m rolling, yoy)

0%

5%

10%

15%

20%

25%

4Q

11

1Q

12

2Q

12

3Q

12

4Q

12

1Q

13

2Q

13

3Q

13

4Q

13

1Q

14

2Q

14

3Q

14

4Q

14

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

4Q

16

1Q

17

2Q

17

3Q

17

4Q

17

1Q

18

2Q

18

3Q

18

4Q

18

1Q

19

Padaleunyi (4-q rolling, yoy) Cipularang (4-q rolling, yoy)

W. Java RCPI (12-m rolling, yoy)

Source:CEIC, JSMR,IndoPremier Source:CEIC, JSMR,IndoPremier



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).

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.

Fig. 50: Road Coverage and Its Growth across Islands Fig. 51: Vehicle Density (Vehicle-to-Road Length Ratio)

0%

1%

2%

3%

4%

5%

6%

0%

20%

40%

60%

80%

100%

120%

140%

Sumatera W. Java C. Java E. Java Bali Borneo Sulawesi EasternIndo

Indonesia

Road Coverage Road Growth (%, 7-yr CAGR)

174

604

205

152121

31 43

0

100

200

300

400

500

600

700

Sumatera Java Bali and NT Borneo Sulawesi Papua Maluku

Vehicle-to-Road Length




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).

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.

Fig. 52: Tariff Range of Airplane ticket (one-way, per person) Fig. 53: Tariff Range of Railway ticket (one-way, per person)

350

-

1,119

767

1,140

815 851

1,804

-

1,932

1,340

2,420

1,425

-

3,257

-

2,744

1,912

3,699

2,035

-

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Bandung Cirebon Malang Semarang Surabaya Yogyakarta Solo

Economy Premium Economy Business

63

225 253

278

220

330 370

-

435

640

405 425

350

400

-

525

830

603 615 600

650

-

100

200

300

400

500

600

700

800

900

Bandung Cirebon Malang Semarang Surabaya Yogyakarta Solo

Economy Business Executive

Source: Traveloka, Tiket.com, IndoPremier Source:Traveloka, Tiket.com, IndoPremier



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.

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.

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.

Fig. 55: Commercial Car Sales (12-m rolling, in ‘000 unit) Fig. 56: Commercial Car Sales Mix (%)

-40%

-20%

0%

20%

40%

60%

80%

0

100

200

300

400

Jan

-10

Jun

-10

No

v-1

0

Ap

r-1

1

Sep

-11

Feb

-12

Jul-

12

De

c-1

2

May

-13

Oct

-13

Mar

-14

Au

g-1

4

Jan

-15

Jun

-15

No

v-1

5

Ap

r-1

6

Sep

-16

Feb

-17

Jul-

17

De

c-1

7

May

-18

Oct

-18

Double Cabin Truck Bus Growth (%, 12-m rolling)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jan

-09

Jun

-09

No

v-0

9

Ap

r-1

0

Sep

-10

Feb

-11

Jul-

11

Dec

-11

May

-12

Oct

-12

Mar

-13

Au

g-1

3

Jan

-14

Jun

-14

No

v-1

4

Ap

r-1

5

Sep

-15

Feb

-16

Jul-

16

Dec

-16

May

-17

Oct

-17

Mar

-18

Au

g-1

8

Double Cabin Truck Bus


Fig. 57: Passenger Car Sales (12-m rolling, in ‘000 unit) Fig. 58: Passenger Car Sales Mix (%)

-40%

-20%

0%

20%

40%

60%

0

200

400

600

800

1000

Jan

-10

Jun

-10

No

v-1

0

Ap

r-1

1

Sep

-11

Feb

-12

Jul-

12

Dec

-12

May

-13

Oct

-13

Mar

-14

Au

g-1

4

Jan

-15

Jun

-15

No

v-1

5

Ap

r-1

6

Sep

-16

Feb

-17

Jul-

17

Dec

-17

May

-18

Oct

-18

LCGC Car Sport Car MPV Sedan Growth (%, 12-m rolling)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jan

-09

Jun

-09

No

v-0

9

Ap

r-1

0

Sep

-10

Feb

-11

Jul-

11

Dec

-11

May

-12

Oct

-12

Mar

-13

Au

g-1

3

Jan

-14

Jun

-14

No

v-1

4

Ap

r-1

5

Sep

-15

Feb

-16

Jul-

16

Dec

-16

May

-17

Oct

-17

Mar

-18

Au

g-1

8

LCGC Car Sport Car MPV Sedan




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. 63: Commercial and Passenger Car Sales Growth vs. JSMR Traffic (% yoy, 12-m rolling)

-25%

-5%

15%

35%

55%

75%

Jan-

10

Jul-1

0

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

Jan-

13

Jul-1

3

Jan-

14

Jul-1

4

Jan-

15

Jul-1

5

Jan-

16

Jul-1

6

Jan-

17

Jul-1

7

Jan-

18

Jul-1

8

Commercial Car Growth Passanger Car Growth JSMR Traffic Volume

Source: CEIC, JSMR, IndoPremier

Fig. 59: Retail Sales(‘000 units) and Inventory Level of 4W Fig. 60: Proportion of Retail-level Car Sales

-20

-15

-10

-5

0

5

10

15

20

25

0

200

400

600

800

1,000

1,200

1,400

2010 2011 2012 2013 2014 2015 2016 2017 2018

Passanger Commercial

Passanger Inventory Commercial Inventory

71% 68% 69% 71% 72% 73%

80% 78% 76%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014 2015 2016 2017 2018

Passanger Commercial

Source: CEIC,Gaikindo,IndoPremier Source: CEIC, IndoPremier

Fig. 61: Wholesale-level Passenger Car Sales Mix in FY18 Fig. 62: Retail-level Passenger Car Sales Mix in FY18




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




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.

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.

Fig. 67: JSMR’s Toll (Blue Line) with Nearby Infra Facilities. Fig. 68: Jakarta’s Airport Traffic and Its Share (%)

46

48

50

52

54

56

58

-

10

20

30

40

50

60

Jan

-09

Jun

-09

No

v-0

9

Ap

r-1

0

Sep

-10

Feb

-11

Jul-

11

Dec

-11

May

-12

Oct

-12

Mar

-13

Au

g-1

3

Jan

-14

Jun

-14

No

v-1

4

Ap

r-1

5

Sep

-15

Feb

-16

Jul-

16

Dec

-16

May

-17

Oct

-17

Mar

-18

Au

g-1

8

Jakarta Airport Traffic (mn passenger) Traffic Share (%) - RHS

Source: JSMR,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.

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.

Fig. 69: Air Traffic Share & Growth (vs. National, 9-yr CAGR) Fig. 70: Air Cargo Share & Growth (vs. National, 9-yr CAGR)

4%

24%

55%

8%5%

15%

25%

35%

45%

55%

0%

5%

10%

15%

20%

25%

Halim Kusuma Soekarno Hatta

Traffic Share (%) - LHS National Growth (%, 9-yr CAGR; 2008-2017)

Growth (%, 9-yr CAGR; 2008-2017)

2%

24%

50%

2%0%

10%

20%

30%

40%

50%

0%

5%

10%

15%

20%

25%

Halim Kusuma Soekarno Hatta


Growth (%, 9-yr CAGR; 2008-2017)


Fig. 71: Ship Cargo Share & Growth (vs. National, 9-yr CAGR) Fig. 72: Ship Vol. Share & Growth (vs. National, 9-yr CAGR)

1.9%

9.4%

-0.03%

6.83%

-1%

1%

3%

5%

7%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Sunda Kelapa Tj. Priok


Growth (%, 9-yr CAGR; 2008-2017)

0.5%

10.2%

-7%

-1%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

Sunda Kelapa Tj. Priok

Traffic Share (%) - LHS

National Growth (%, 9-yr CAGR; 2008-2017)

Growth (%, 9-yr CAGR; 2008-2017)




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.

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.

Fig. 73: JSMR’s Traffic Volume (12-m rolling, in PCUm) Fig. 74: Traffic Volume Proportion by Regions

500

600

700

800

900

1,000

1,100

1,200

1,300

1,400

1,500

-

50

100

150

200

250

300

350

De

c-0

8

Ap

r-0

9

Au

g-0

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De

c-0

9

Ap

r-1

0

Au

g-1

0

De

c-1

0

Ap

r-1

1

Au

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1

De

c-1

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c-1

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r-1

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r-1

4

Au

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r-1

5

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Au

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c-1

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Au

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8

De

c-1

8

Java ex-Jakarta - LHS Ex-Java - LHS G. Jakarta - RHS Total - RHS

0%

20%

40%

60%

80%

100%

Dec

-08

Ap

r-0

9

Au

g-0

9

Dec

-09

Ap

r-1

0

Au

g-1

0

Dec

-10

Ap

r-1

1

Au

g-1

1

Dec

-11

Ap

r-1

2

Au

g-1

2

Dec

-12

Ap

r-1

3

Au

g-1

3

Dec

-13

Ap

r-1

4

Au

g-1

4

Dec

-14

Ap

r-1

5

Au

g-1

5

Dec

-15

Ap

r-1

6

Au

g-1

6

Dec

-16

Ap

r-1

7

Au

g-1

7

Dec

-17

Ap

r-1

8

Au

g-1

8

Dec

-18

G. Jakarta Java ex-Jakarta Ex-Java


Fig. 75: Greater Jakarta Traffic Trend (12-m rolling, in PCUm) Fig. 76: Regional Transport CPI vs. Tariff Trend in Jakarta

300

350

400

450

500

550

600

De

c-0

8

Ma

r-0

9

Jun

-09

Se

p-0

9

De

c-0

9

Ma

r-1

0

Jun

-10

Se

p-1

0

De

c-1

0

Ma

r-1

1

Jun

-11

Se

p-1

1

De

c-1

1

Ma

r-1

2

Jun

-12

Se

p-1

2

De

c-1

2

Ma

r-1

3

Jun

-13

Se

p-1

3

De

c-1

3

Ma

r-1

4

Jun

-14

Se

p-1

4

De

c-1

4

Ma

r-1

5

Jun

-15

Se

p-1

5

De

c-1

5

Ma

r-1

6

Jun

-16

Se

p-1

6

De

c-1

6

Ma

r-1

7

Jun

-17

Se

p-1

7

De

c-1

7

Ma

r-1

8

Jun

-18

Se

p-1

8

De

c-1

8

Ma

r-1

9

Inner-city Toll Road Inter-city Toll Road

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

JIRR (4-q rolling, yoy) JORR (4-q rolling, yoy) Jakarta RCPI (12-m rolling, yoy)

Source: JSMR, IndoPremier Source: CEIC, 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.

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.

Fig. 77: Regional Transport CPI vs. Tariff Trend in Banten Fig. 78: Tariff and Traffic Trends in Jakarta – Tangerang

0%

5%

10%

15%

20%

25%

4Q11

1Q12

2Q12

3Q12

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

Jakarta - T'gerang (4-q rolling, yoy) Banten RCPI (12-m rolling, yoy)

1,000

2,000

3,000

4,000

5,000

6,000

7,000

7

8

8

9

9

10

10

11

11

12

12

Jan

-10

May

-10

Sep

-10

Jan

-11

May

-11

Sep

-11

Jan

-12

May

-12

Sep

-12

Jan

-13

May

-13

Sep

-13

Jan

-14

May

-14

Sep

-14

Jan

-15

May

-15

Sep

-15

Jan

-16

May

-16

Sep

-16

Jan

-17

May

-17

Sep

-17

Jan

-18

May

-18

Sep

-18

Jan

-19

Monthly Traffic (PCUm) Group I Tariff

Source: CEIC, JSMR,IndoPremier Source: JSMR,IndoPremier

Fig. 79: Tariff and Traffic Trends in JIRR (Cawang – Pluit) Fig. 80: Tariff and Traffic Trends in Jakarta – Bogor - Ciawi

4,000

5,000

6,000

7,000

8,000

9,000

10,000

17

18

19

20

21

22

23

24

25

26

27

Jan

-10

May

-10

Sep

-10

Jan

-11

May

-11

Sep

-11

Jan

-12

May

-12

Sep

-12

Jan

-13

May

-13

Sep

-13

Jan

-14

May

-14

Sep

-14

Jan

-15

May

-15

Sep

-15

Jan

-16

May

-16

Sep

-16

Jan

-17

May

-17

Sep

-17

Jan

-18

May

-18

Sep

-18

Jan

-19

Monthly Traffic (PCUm) Group I Tariff - JIRR Group I Tariff - Sedyatmo

1,000

2,000

3,000

4,000

5,000

6,000

7,000

9

10

11

12

13

14

15

16

17

18

Jan

-10

May

-10

Sep

-10

Jan

-11

May

-11

Sep

-11

Jan

-12

May

-12

Sep

-12

Jan

-13

May

-13

Sep

-13

Jan

-14

May

-14

Sep

-14

Jan

-15

May

-15

Sep

-15

Jan

-16

May

-16

Sep

-16

Jan

-17

May

-17

Sep

-17

Jan

-18

May

-18

Sep

-18

Jan

-19


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.

Fig. 81: Tariff and Traffic Trends in JORR Fig. 82: Tariff and Traffic Trends in Jakarta – Cikampek

6,000

7,000

8,000

9,000

10,000

11,000

12,000

13,000

14,000

15,000

16,000

-

2

4

6

8

10

12

14

16

18

20

Jan

-10

Jun

-10

No

v-1

0

Ap

r-1

1

Sep

-11

Feb

-12

Jul-

12

Dec

-12

May

-13

Oct

-13

Mar

-14

Au

g-1

4

Jan

-15

Jun

-15

No

v-1

5

Ap

r-1

6

Sep

-16

Feb

-17

Jul-

17

Dec

-17

May

-18

Oct

-18

Mar

-19


2,000

4,000

6,000

8,000

10,000

12,000

9

11

13

15

17

19

Jan

-10

May

-10

Sep

-10

Jan

-11

May

-11

Sep

-11

Jan

-12

May

-12

Sep

-12

Jan

-13

May

-13

Sep

-13

Jan

-14

May

-14

Sep

-14

Jan

-15

May

-15

Sep

-15

Jan

-16

May

-16

Sep

-16

Jan

-17

May

-17

Sep

-17

Jan

-18

May

-18

Sep

-18

Jan

-19

Monthly Traffic (PCUm) Group I Tariff - Region III

Group I Tariff - Region IV

Source: JSMR,IndoPremier Source: JSMR,IndoPremier



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


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

20

40

60

80

100

120

140

De

c-0

8

May

-09

Oct

-09

Mar

-10

Au

g-1

0

Jan

-11

Jun

-11

No

v-1

1

Ap

r-1

2

Sep

-12

Feb

-13

Jul-

13

De

c-1

3

May

-14

Oct

-14

Mar

-15

Au

g-1

5

Jan

-16

Jun

-16

No

v-1

6

Ap

r-1

7

Sep

-17

Feb

-18

Jul-

18

De

c-1

8

W. Java C. Java E. Java

0.5

1.5

2.5

3.5

4.5

5.5

6.5

Dec

-08

May

-09

Oct

-09

Mar

-10

Au

g-1

0

Jan

-11

Jun

-11

No

v-1

1

Ap

r-1

2

Sep

-12

Feb

-13

Jul-

13

Dec

-13

May

-14

Oct

-14

Mar

-15

Au

g-1

5

Jan

-16

Jun

-16

No

v-1

6

Ap

r-1

7

Sep

-17

Feb

-18

Jul-

18

Dec

-18

Purbaleunyi Palikanci




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%).

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

0%

5%

10%

15%

20%

25%

Padaleunyi (4-q rolling, yoy) Cipularang (4-q rolling, yoy) W. Java RCPI (12-m rolling, yoy)

Source: CEIC, JSMR, IndoPremier

Fig. 86: Sub-Standard Road Proportion in 2017 – Java Regions Fig. 87: Road Coverage and Growth (%, 7-yr CAGR) – Java

16% 17%

10%

29%

26%

29%

7%

15%

5%

0%

5%

10%

15%

20%

25%

30%

35%


Provincial-Level Regency-Level City-Level

86%

94%

83%

3%

1%

2%

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%

2.2%

2.4%

2.6%

2.8%

3.0%

76%

78%

80%

82%

84%

86%

88%

90%

92%

94%


Road Coverage National Growth (%, 7-yr CAGR) - RHS

Road Growth (%, 7-yr CAGR) -RHS




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).

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.

Fig. 89: Tariff and Traffic Trends in Purbaleunyi Fig. 90: Tariff and Traffic Trends in Palikanci

6,000

11,000

16,000

21,000

26,000

31,000

36,000

4

5

5

6

6

7

Jan

-10

Jun

-10

No

v-1

0

Ap

r-1

1

Sep

-11

Feb

-12

Jul-

12

Dec

-12

May

-13

Oct

-13

Mar

-14

Au

g-1

4

Jan

-15

Jun

-15

No

v-1

5

Ap

r-1

6

Sep

-16

Feb

-17

Jul-

17

Dec

-17

May

-18

Oct

-18

Mar

-19

Monthly Traffic (PCUm) Group I Tariff - Padalarang

Group I Tariff - Cipularang

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

0.75

0.95

1.15

1.35

1.55

1.75

1.95

2.15

2.35

2.55

Jan

-10

Jun

-10

No

v-1

0

Ap

r-1

1

Sep

-11

Feb

-12

Jul-

12

Dec

-12

May

-13

Oct

-13

Mar

-14

Au

g-1

4

Jan

-15

Jun

-15

No

v-1

5

Ap

r-1

6

Sep

-16

Feb

-17

Jul-

17

Dec

-17

May

-18

Oct

-18

Mar

-19

Monthly Traffic (PCUm) Group I Tariff Group III Tariff

Source: JSMR,IndoPremier Source: JSMR, IndoPremier

Fig. 91: The Fares on Alternative Transports (Air and Train) Fig. 92: Air-borne Traffic on Indonesian Major Airports

767

1,340

1,912

278 405

603

-

500

1,000

1,500

2,000

2,500

Low Mid High

Air Fares Train Fares

0%

10%

20%

30%

40%

50%

60%

0%

5%

10%

15%

20%

25%

30%

Traffic Share (%) National Growth (%, 9-yr CAGR; 2008-2017)

Growth (%, 9-yr CAGR; 2008-2017)

Source: Traveloka, Tiket.com,IndoPremier Source: CEIC, 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.

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.

Fig. 93: Traffic Trends in Central Java Toll Roads Fig. 94: Tariff and Traffic Trends in Semarang Sect. ABC

-

0.5

1.0

1.5

2.0

2.5

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Dec

-08

Ap

r-0

9A

ug-

09

Dec

-09

Ap

r-1

0A

ug-

10

Dec

-10

Ap

r-1

1A

ug-

11

Dec

-11

Ap

r-1

2A

ug-

12

Dec

-12

Ap

r-1

3A

ug-

13

Dec

-13

Ap

r-1

4A

ug-

14

Dec

-14

Ap

r-1

5A

ug-

15

Dec

-15

Ap

r-1

6A

ug-

16

Dec

-16

Ap

r-1

7A

ug-

17

Dec

-17

Ap

r-1

8A

ug-

18

Dec

-18

Semarang Sect. ABC Semarang - Solo - RHS

Solo - Ngawi - RHS Ngawi - Kertosono -RHS

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

Jan

-10

Jun

-10

No

v-1

0

Ap

r-1

1

Sep

-11

Feb

-12

Jul-

12

Dec

-12

May

-13

Oct

-13

Mar

-14

Au

g-1

4

Jan

-15

Jun

-15

No

v-1

5

Ap

r-1

6

Sep

-16

Feb

-17

Jul-

17

Dec

-17

May

-18

Oct

-18

Mar

-19


Source: JSMR, IndoPremier Source: JSMR,IndoPremier

Fig. 95: Traffic Trends in East Java Toll Roads Fig. 96: East Java starts dominating Java revenue formation

0

0.5

1

1.5

2

2.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

Dec

-08

Ap

r-0

9A

ug-

09

Dec

-09

Ap

r-1

0A

ug-

10

Dec

-10

Ap

r-1

1A

ug-

11

Dec

-11

Ap

r-1

2A

ug-

12

Dec

-12

Ap

r-1

3A

ug-

13

Dec

-13

Ap

r-1

4A

ug-

14

Dec

-14

Ap

r-1

5A

ug-

15

Dec

-15

Ap

r-1

6A

ug-

16

Dec

-16

Ap

r-1

7A

ug-

17

Dec

-17

Ap

r-1

8A

ug-

18

Dec

-18

Surabaya - Gempol Surabaya - Mojokerto - RHS

Gempol - Pandaan - RHS Gempol - Pasuruan - RHS

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

West Java Central Java East Java




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.

Fig. 97: Tariff and Traffic Trends in Surabaya – Gempol Fig. 98: Revenue Growth Trends in Java Island

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

Jan

-10

Jun

-10

No

v-1

0

Ap

r-1

1

Sep

-11

Feb

-12

Jul-

12

Dec

-12

May

-13

Oct

-13

Mar

-14

Au

g-1

4

Jan

-15

Jun

-15

No

v-1

5

Ap

r-1

6

Sep

-16

Feb

-17

Jul-

17

Dec

-17

May

-18

Oct

-18

Mar

-19


-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

3Q

12

4Q

12

1Q

13

2Q

13

3Q

13

4Q

13

1Q

14

2Q

14

3Q

14

4Q

14

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

4Q

16

1Q

17

2Q

17

3Q

17

4Q

17

1Q

18

2Q

18

3Q

18

4Q

18

1Q

19

West Java Central Java East Java Greater Jakarta




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).

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).

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.

Fig. 99: JSMR’s Sumatera Toll Road Fig. 100: JSMR’s Borneo Toll Road


Fig. 101: JSMR’s Sulawesi Toll Road Fig. 102: Road Coverage on Regions containing JSMR toll road

Source: JSMR, 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

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.

Fig. 103: Good Road Proportion in 2017 Fig. 104: Sub-Standard Road Proportion in 2017

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Sumatera W. Java C. Java E. Java Borneo Bali Sulawesi EasternIndo

Total


0%

10%

20%

30%

40%

50%

Sumatera W. Java C. Java E. Java Borneo Bali Sulawesi EasternIndo

Total



Fig. 105: Car Driving License Ownership Statistics Fig. 106: Truck Driving License Ownership Statistics

-5%

0%

5%

10%

15%

20%

25%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Car License Share (%)

National Growth (%, 7-yr CAGR)

Licence Ownership Growth (%, 7-yr CAGR)

-40%

-30%

-20%

-10%

0%

10%

20%

30%

0%

5%

10%

15%

20%

25%

N.Sumatera

G. Jakarta W. Java C. Java E. Java Banten Bali E. Borneo N.Sulawesi

Truck License Share (%)


Regional License Creation Growth (%, 7-yr CAGR)




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.

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.

Fig. 107: Heavy Vehicle Driving License Ownership Statistics Fig. 108: Air Traffic and Its Share for Indo Major Airports

-10%

0%

10%

20%

30%

40%

50%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

N.Sumatera

G. Jakarta W. Java C. Java E. Java Banten Bali E. Borneo N.Sulawesi

Heavy Vehicle License Share (%)


Regional License Creation Growth (%, 7-yr CAGR)


Fig. 109: Cargo Traffic and Its Share for Indo Major Airports Fig. 110: Traffic Trends in Ex-Java Toll Roads

0%

10%

20%

30%

40%

50%

60%

0%

5%

10%

15%

20%

25%

30%

Traffic Share (%)

National Growth (%, 9-yr CAGR; 2008-2017)

Growth (%, 9-yr CAGR; 2008-2017)

0

0.5

1

1.5

2

2.5

3

Dec

-08

May

-09

Oct

-09

Mar

-10

Au

g-1

0

Jan

-11

Jun

-11

No

v-1

1

Ap

r-1

2

Sep

-12

Feb

-13

Jul-

13

Dec

-13

May

-14

Oct

-14

Mar

-15

Au

g-1

5

Jan

-16

Jun

-16

No

v-1

6

Ap

r-1

7

Sep

-17

Feb

-18

Jul-

18

Dec

-18

Belmera Medan - Tb. Tinggi Nusa Dua - Benoa

Source: CEIC, 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. 111: Tariff and Traffic Trends in Belmera Fig. 112: Ex-Java Quarterly Revenue Trend and Its Share (%)

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1.20

1.40

1.60

1.80

2.00

2.20

2.40

2.60

Jan-

10

Jun

-10

No

v-10

Ap

r-11

Sep-

11

Feb-

12

Jul-

12

Dec

-12

May

-13

Oct

-13

Mar

-14

Au

g-14

Jan-

15

Jun

-15

No

v-15

Ap

r-16

Sep-

16

Feb-

17

Jul-

17

Dec

-17

May

-18

Oct

-18

Mar

-19


0%

1%

2%

3%

4%

5%

6%

7%

-

20

40

60

80

100

120

140

160

Ex-Java Revenue Share (%) - RHS


Fig. 113: JSMR Revenue Composition (Rpbn) Fig. 114: Revenue Growth (% yoy, 4-q rolling)

-

500

1,000

1,500

2,000

2,500

4Q

10

1Q

11

2Q

11

3Q

11

4Q

11

1Q

12

2Q

12

3Q

12

4Q

12

1Q

13

2Q

13

3Q

13

4Q

13

1Q

14

2Q

14

3Q

14

4Q

14

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

4Q

16

1Q

17

2Q

17

3Q

17

4Q

17

1Q

18

2Q

18

3Q

18

4Q

18

1Q

19

Jakarta W. Java C. Java E. Java Ex-Java

5%

25%

45%

65%

85%

105%

125%

145%

-60%

-40%

-20%

0%

20%

40%

60%

80%

3Q

12

4Q

12

1Q

13

2Q

13

3Q

13

4Q

13

1Q

14

2Q

14

3Q

14

4Q

14

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

4Q

16

1Q

17

2Q

17

3Q

17

4Q

17

1Q

18

2Q

18

3Q

18

4Q

18

1Q

19

Jakarta W. Java C. Java E. Java Ex-Java - RHS




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).

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.

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.

Fig. 115: Revenue Share Across Region (%) Fig. 116: Price Elasticity of JSMR’s Toll Road Across Regions

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

-

10

20

30

40

50

60

70

80

90

100

4Q

10

1Q

11

2Q

11

3Q

11

4Q

11

1Q

12

2Q

12

3Q

12

4Q

12

1Q

13

2Q

13

3Q

13

4Q

13

1Q

14

2Q

14

3Q

14

4Q

14

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

4Q

16

1Q

17

2Q

17

3Q

17

4Q

17

1Q

18

2Q

18

3Q

18

4Q

18

1Q

19

Jakarta W. Java

C. Java E. Java

Ex-Java Revenye Growth (% yoy, 4-q rolling)

0.008

0.288

0.014 0.050

0.401 0.479

0.312

0.631

1.973

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

Jakarta Java Ex-Java

Low Mid High

Source: JSMR, IndoPremier Source:JSMR, IndoPremier

Fig. 117: Profitability Margins (%) Fig. 118: EBITDA Margin and Several Common Size I/S items

0%

10%

20%

30%

40%

50%

60%

70%

2010 2011 2012 2013 2014 2015 2016 2017 2018

GPM EBITDA OPM Pre-Tax NPM

1%

3%

5%

7%

9%

11%

13%

15%

17%

44%

46%

48%

50%

52%

54%

56%

2010 2011 2012 2013 2014 2015 2016 2017 2018

EBITDA Operating Salaries (% of Sales)

Depreciation (% Sales) Non-Core Sales (% Total)




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).

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. 119: Operating measures and Salaries (% Sales) Fig. 120: NPM, Leverage, and Concession (% Assets)

-

1,000

2,000

3,000

4,000

5,000

6,000

0%

2%

4%

6%

8%

10%

12%

14%

16%

2010 2011 2012 2013 2014 2015 2016 2017 2018

Operating Salaries (% of Sales) Number of Toll Gate Operator

Total Length (km)

60%

80%

100%

120%

140%

160%

180%

200%

0%

5%

10%

15%

20%

25%

30%

2010 2011 2012 2013 2014 2015 2016 2017 2018

NPM D/E Concession (% Assets)


Fig. 121: Return on Assets (%) Fig. 122: Return on Equity (%)

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2011 2012 2013 2014 2015 2016 2017 2018

ROAA Adj. ROAA Core ROAA - RHS

0%

5%

10%

15%

20%

25%

30%

35%

2011 2012 2013 2014 2015 2016 2017 2018

ROAE Core ROAE - RHS




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

100

200

300

400

500

600

700

800

900

1,000

500

1,500

2,500

3,500

4,500

5,500

6,500

7,500

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

50

100

150

200

250

300

350

500

1,500

2,500

3,500

4,500

5,500

6,500

7,500

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.



Fig. 124: Share Prices vs. 10-yr Indonesian Government Bond Yield

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

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



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

(Toll Business Only) 1.0 9.7 6.3 14.7 14.2

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)

(2.4)

4.8

19.2

9.4 8.9

4.4

15.2

39.4

(5.0)

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

Traffic Operating Costs Toll Road Length Finance Costs

2015-2018A 2018-2021F

9.3

12.7

15.8 14.5

11.3

15.8

(0.4)

5.6

(2.0)

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

Revenue EBITDA Pre-Tax Net Income

2015-2018A 2018-2021F

Source:IndoPremier Source:IndoPremier



Equity Absolute Valuation

Fig. 129: Our Assumption on Sum-of-The-Part (SOTP) Valuation

Attributable Equity Value

(Rpbn)

Project

Cost of

Equity (%)

Investment

Cost

(Rpbn/km)

FY19F Avg.

Traffic

(PCUm/day)

Growth (%, CAGR FY19-21F) FY19F

EBITDA

Margin (%)

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



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

5

10

15

20

25

30

35

40


5

10

15

20

25

30

35

40

45


Source: Bloomberg, IndoPremier Source: Bloomberg, IndoPremier

Fig. 132: Trailing EV/EBITDA Band Fig. 133: Forward EV/EBITDA

4

6

8

10

12

14

16

18

20


4

6

8

10

12

14

16

18





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

10.7 9.9

3.5 3.1

2.7 2.6

0.4 0.2

-

2.0

4.0

6.0

8.0

10.0

12.0

NusantaraInfra

Trans Kota WCEHoldings

Noida Toll JasaMarga

CitraMarga

IL&FSTransport

MEP Infra

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.

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.

Fig. 135: Peer Comparison – EBITDA Margin in 2018 (%) Fig. 136: Peer Comparison – Net Margin in 2018 (%)

88.0

59.4 53.6

49.6

42.8

34.1 28.6

-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

LingkaranTrans Kota

Jasa Marga BangkokExpressway

IL&FSTransport

NusantaraInfra

MEP Infra Citra Marga

45.8

34.1

23.0 22.1 19.8

2.0 2.0

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

LingkaranTrans Kota

BangkokExpressway

NusantaraInfra

Jasa Marga Citra Marga IL&FSTransport

MEP InfraDevelopers




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.

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.

Fig. 137: Peer Comparison – ROAA in 2018 (%) Fig. 138: Peer Comparison – ROAE in 2018 (%)

10.3

6.1 5.3

4.4 3.9

1.1

0.2 67

160 115 29

1,526

2,550

-

500

1,000

1,500

2,000

2,500

-

2.0

4.0

6.0

8.0

10.0

12.0

LingkaranTrans Kota

Citra Marga BangkokExpressway

NusantaraInfra

Jasa Marga MEP InfraDevelopers

IL&FSTransport

ROAA (%) Asset Length (km) - RHS

33.7

26.3

16.0

12.0 11.6

7.8

1.4

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

MEP InfraDevelopers

LingkaranTrans Kota

BangkokExpressway

Jasa Marga Citra Marga NusantaraInfra

IL&FSTransport


Fig. 139: Peer Comparison – Revenue Growth (%, 3-yr CAGR) Fig. 140: Peer Comparison – EBITDA Growth (%, 3-yr CAGR)

33.1

12.1 11.4 9.4 9.3

7.0 6.0

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

Citra Marga BangkokExpressway

MEP InfraDevelopers

IL&FSTransport

Jasa Marga LingkaranTrans Kota

NusantaraInfra

22.7

18.1

12.7

8.3 8.1 5.9

(16.3) (20.0)

(15.0)

(10.0)

(5.0)

-

5.0

10.0

15.0

20.0

25.0

IL&FSTransport

Citra Marga Jasa Marga BangkokExpressway

LingkaranTrans Kota

NusantaraInfra

MEP InfraDevelopers




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



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).



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).



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



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



Ngawi Kertosono Jaya (NKJ)

Equity



Lintas Marga Jawa - SPE 195 195

Total Equity 955 955 975

Stake (%)

Jasa Marga 61 41 40



Jasa Marga Semarang Batang (JSB)

Equity

Jasa Marga 80 53 68


Lintas Marga Jawa - SPE 27 34


Stake (%)

Jasa Marga 60 40 40



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




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.



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)


Regency Government of Pasuruan 39 39 39

PT Trans Optima Luhur (Special Purpose Entity) - 209 339


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




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.:



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




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


Head Office

PT INDO PREMIER SEKURITAS

Wisma GKBI 7/F Suite 718

Jl. Jend. Sudirman No.28

Jakarta 10210 - Indonesia

p +62.21.5793.1168

f +62.21.5793.1167

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.

Jasa Marga 26 June 2019 (JSMR IJ) BUY (Unchanged) JSMR Major Shareholders Government of Indonesia 70.0% BPJS Ketenagakerjaan 3.3% PT Taspen 2.2% Estimate Change; Vs. Consensus securitizing

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