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Indonesia Initiating Coverage

See important disclosures at the end of this report 1

6 February 2019 Infrastructure | Toll Roads

Jasa Marga (JSMR IJ) Buy

New Toll Roads To Boost Growth; Initiate BUY Target Price (Return) IDR6,100 (+27%)

(+18%) Price: IDR4,820

Market Cap: USD2,504m

Avg Daily Turnover (IDR/USD) 40,278.15m/2.88m Initiate coverage with BUY and Street-high DCF-based IDR6,100 TP, 27%

upside, while reflecting 11.7-10.2x FY19F-20F EV/EBITDA. Jasa Marga is the

key beneficiary of a fully-connected Merak-Surabaya toll road that began

operating at end-2018. In mid-2019, it is set to kick off operations of the

Jakarta-Cikampek Elevated Toll Road and adjust tariff rates. New toll roads

ahead – Kunciran-Serpong and Serpong-Cinere (part of Jakarta’s Outer Ring

Road 2 or “JORR2”) – should boost traffic volume, being in areas with high

traffic density. Capex should decline in 2020 onwards. Premised on this, it is

set to reap the fruits of an aggressive expansion over the past four years. The

recent inclusion into the Jakarta Islamic Index is also share price positive.

JSMR is the key beneficiary of the full connection of the Trans-Java Toll

Road, being Indonesia’s leading toll road operator. Its traffic volume growth

should accelerate after the full connection of the 933km Merak-Pasuruan Toll

Road. This road’s EBITDA margin is 70-80% higher than JSMR’s older

projects, which record margins of c.60%. It owns 33 toll road concessions,

with roads spanning 1,527 km. It has a 65% market share in commercial toll

road length (788km) and 80% market share of toll road transaction volumes.

Jakarta-Cikampek to further boost earnings. This elevated toll road is

scheduled to commence operations in mid-2019. This gives JSMR room to

adjust tariffs, as customers are likely to opt for roads with less traffic and

shorter travelling times. The Jakarta-Cikampek toll road – connecting Jakarta

and its industrial cities – is the busiest inter-city toll road in Indonesia.

Kunciran-Serpong and Serpong-Cinere to boost traffic. These sections –

scheduled for 2019 – are part of JORR2 and connect satellite residential

cities around Jakarta, ie Depok, Serpong, and Tangerang. We believe the

potential for traffic to increase on these roads is substantial.

Benefiting from aggressive expansion. Since major toll roads are

scheduled begin in 2018-2019 – mainly on the Trans-Java Toll Road and

JORR2, which have high traffic volume – JSMR should start benefiting from

having aggressively expanded during the past four years. Its toll road length

has grown >80%. As new toll roads mature, it has more room to restructure

assets and strengthen its balance sheet. In 2015-2019F, Indonesia has/will

have c.1,920km of additional toll roads, roughly half developed by JSMR.

Good for the long term. The toll road business has seen consistent traffic

volume growth, making JSMR attractive for long-term investors. The key

downside risk: high financing cost, which is normal given its massive recent

4-year toll road expansion. JSMR has extensive experience in raising funds,

as well as advanced experience in alternative fund-raising: future revenue-

backed securities, project and Komodo bonds, and mutual fund investments

with limited participation. This helps lower D/E.

Analysts

Andrey Wijaya

+6221 2970 7058

[email protected]

Mutiara Nita

+6221 2783 0719 [email protected]

Share Performance (%)

YTD 1m 3m 6m 12m

Absolute 12.6 0.4 15.3 (3.6) (13.9)

Relative 8.0 (2.9) 5.6 (11.5) (11.7)

52-wk Price low/high (IDR) 3,800-5,850

Source: Bloomberg

Forecasts and Valuation Dec-16 Dec-17 Dec-18F Dec-19F Dec-20F

Total turnover (IDRbn) 8,832 8,922 11,105 12,577 14,140 Reported net profit (IDRbn) 1,889 2,200 2,218 2,092 2,284

Net profit growth (%) 28.8 16.5 0.8 (5.7) 9.2

EPS (IDR) 259 301 304 287 313

P/E (x) 18.6 16.0 15.9 16.8 15.4

P/B (x) 2.5 2.0 1.8 1.6 1.5

Dividend Yield (%) 0.8 1.6 1.9 1.8 1.9

EV/EBITDA (x) 12.3 11.5 10.4 8.8 7.8

Return on average equity (%) 13.2 12.7 11.3 9.7 9.7

Net gearing (x) 1.3 1.4 1.8 2.6 2.9

Source: Company data, RHB

mailto:[email protected]

mailto:[email protected]

Jasa Marga Indonesia Initiating Coverage

6 February 2019 Infrastructure | Toll Road


Financial Exhibits

Financial model updated on: 2019-01-31

Asia

Indonesia

Infrastructure – Toll Road

Jasa Marga

Major shareholders (%)

Republic of Indonesia 70.0

Valuation basis

Our DCF assumptions include: i. WACC of 8.5%; ii. TG of 0%; iii. 35 years cash flow, in line with concession

period.

Key drivers

Our forecasts are most sensitive to changes in: i. Higher traffic volume, which is driven by the full

connection of the Trans-Java Toll Road and JORR2 commencing operations;

ii. Higher toll road tariffs, especially for the Jakarta-Cikampek elevated road;

iii. Lower debts as a result of divestment or asset securitisation of subsidiaries.

Key risks

The downside risks include: i. Higher financing costs; ii. Rising toll road construction costs; iii. Change in government regulations on toll roads.

Company Profile

JSMR is the leading toll road operator in Indonesia. The company collects toll payments, maintains road surfaces, and offers other toll road-related services. It has 33 toll road concessions, with roads spanning 1,527 km. It has a 65% market share in commercial toll road length (788km) and 80% market share of toll road transaction volumes.


Financial Summary 2016 2017 2018F 2019F 2020F

EPS (IDR) 259 301 304 287 313

DPS (IDR) 40 78 91 86 94

BVPS (IDR) 1,966 2,377 2,680 2,965 3,217

Valuation Metrics 2016 2017 2018F 2019F 2020F

P/E (x) 18.6 16.0 15.9 16.8 15.4

P/B (x) 2.5 2.0 1.8 1.6 1.5

Dividend Yield (%) 0.8 1.6 1.9 1.8 1.9

EV/EBITDA (x) 12.3 11.5 10.4 8.8 7.8

Income Statement (IDRb) 2016 2017 2018F 2019F 2020F

Total Turnover 8,832 8,922 11,105 12,577 14,140

Gross Profit 4,856 5,308 6,417 7,301 8,222

EBITDA 5,025 5,361 5,956 6,992 7,949

Depreciation and Amortisation 859 713 946 1,262 1,471

Operating Profit 4,166 4,648 5,010 5,730 6,478

Equity Income (7) (129) (33) (38) (42)

Finance Cost - net (1,509) (1,269) (1,800) (2,662) (3,120)

Pre-Tax Profit 2,650 3,250 3,177 3,030 3,315

Taxation (847) (1,157) (826) (788) (862)

Minority Interests (86) (107) (133) (150) (169)

Net Profit 1,889 2,200 2,218 2,092 2,284

Cash Flow (IDRb) 2016 2017 2018F 2019F 2020F

Net Working Capital (9,787) (12,884) (18,067) (24,298) (31,635)

Cash Flow from Operations 5,198 6,010 8,347 9,586 11,092

Capex (10,817) (22,128) (21,369) (32,387) (20,406)

Cash Flow from Investing Activities (8,399) (20,384) (21,428) (32,448) (20,468)

Cash Flow from Financing Activities 4,003 17,121 14,224 22,276 8,192

Cash at Beginning of Period 3,323 4,125 6,873 8,016 7,430

Net Change in Cash 802 2,748 1,143 (587) (1,185)

Ending Balance Cash 4,125 6,873 8,016 7,430 6,245

Balance Sheet (IDRb) 2016 2017 2018F 2019F 2020F

Total Cash and Equivalents 4,125 6,873 8,016 7,430 6,245

Tangible Fixed Assets 885 1,036 1,194 1,342 1,479

Intangible Asset 36,899 56,089 76,342 107,306 126,091

Total Assets 53,500 79,193 99,087 125,193 141,489

Interest-bearing Debt 25,020 32,449 44,995 66,550 78,010

Total Liabilities 37,161 60,833 78,323 102,671 117,049

Shareholders' Equity 13,679 15,098 17,304 18,768 20,367

Minority Interests 2,660 3,262 3,461 3,754 4,073

Total Liabilities & Equity 53,500 79,193 99,087 125,193 141,489

Key Metrics 2016 2017 2018F 2019F 2020F

Revenue Growth (%) 15.7 1.0 24.5 13.3 12.4

EPS Growth (%) 28.8 16.5 0.8 -5.7 9.2

Gross Margin (%) 55.0 59.5 57.8 58.0 58.1

EBITDA Margin (%) 56.9 60.1 53.6 55.6 56.2

Net Profit Margin (%) 21.4 24.7 20.0 16.6 16.2

Dividend Payout Ratio (%) 15.5 25.8 30.0 30.0 30.0

Net gearing (%) 1.28 1.39 1.78 2.63 2.94




Investment Thesis

Indonesia’s leading toll road operator

JSMR has been Indonesia’s leading toll road operator for almost 40 years. It owns 33 toll road concessions, with roads spanning 1,527km in total. It has a 65% market share in terms of commercial toll road length (787.5km) and 80% market share of toll road transaction volumes.

Under the Joko Widodo (Jokowi)-helmed administration, the number of toll road projects in Indonesia has increased. JSMR has reaped the benefits of these multiple government project in recent years. The company has won multiple projects to build and operate toll roads across Indonesia, including road in Java, Sumatra, Kalimantan and Sulawesi. Note that, during the 2015-2019F period, there have been/will be c.1,920km of additional toll roads in Indonesia, roughly half of them developed by JSMR.

The company’s toll road portfolio covers diverse geographic regions. This includes toll roads that provide access to and around most populated regions, such as Jakarta, Surabaya, Semarang, Bali, and Medan. This year, JSMR is commencing operations on new toll roads in Samarinda and Manado. The company is benefiting from increased economic growth in all regions across Indonesia.

Figure 1: JSMR’s market share of operating toll roads Figure 2: JSMR’s market share of transaction volumes

Source: Company data Source: Company data

Key beneficiary of the full connection of the Trans-Java Toll Road

We believe its traffic volume growth will accelerate after the commencement of the full connection of the 933km Merak-Pasuruan Toll Road. The latter is part of the Trans-Java Toll Road. The company said the EBITDA margin of the new toll road is 70-80% higher than its older projects, which are at c.60%.

The Trans-Java Toll Road is one of Indonesia’s large-scale infrastructure projects, connecting most of the big cities in Java. It spans more than 1,167km – starting from Merak in Banten and ending at Banyuwangi in East Java. It is set to improve inter-region connectivity, especially in Java, through land transportation.

It is also estimated that travelling time between cities on the island can be reduced by at least 50%. For example, the travelling time between Merak and Surabaya now takes only 10-15 hours vs more than 20 hours via conventional means, ie non-toll roads.

65%

35%

Jasa Marga's market shares of toll road in operation Others

80%

20%

Jasa Marga's market shares of transaction volume Others




Figure 3: Trans-Java Toll Road network (Merak-Pasuruan, 933km)

Source: Company, Tribunnews, RHB

Jakarta-Cikampek road should boost earnings further

This elevated toll road is scheduled to commence operations in mid-2019 and should give JSMR the opportunity to adjust its toll road tariffs – this is because customers should face less traffic congestion and benefit from shorter travelling times after this section begins operations. This section is the busiest inter-city toll road in Indonesia, with this 8-laner facilitating c.500,000 vehicles per day in 2018. This huge traffic volume – but limited toll road line – has caused much congestion along the toll road section.

As at early Jan 2019, the construction of the 36km Jakarta-Cikampek elevated road has reached 62%. This elevated toll road should reduce traffic congestion in the Jakarta-Cikampek Toll Road section by separating vehicles between those with long-distance destinations – eg Cirebon, Bandung, Semarang, and Surabaya – and those travelling shorter distances, ie Bekasi and Karawang.

Figure 4: Congested traffic on the Jakarta-Cikampek Toll Road

Figure 5: Jakarta-Cikampek elevated road’s construction

Source: Antara News Source: Tempo.co

Kunciran-Serpong and Serpong-Cinere likely to boost traffic

These toll road sections – which are scheduled to start operations in 2019 – are part of JORR2, which will connect satellite residential cities in Depok, Serpong, Cengkareng, and Tangerang (Soekarno-Hatta International Airport). It will also connect to toll roads owned by other operators to improve connectivity to housing and industrial areas in Cimanggis and Cibitung. We believe this toll road has high potential to see traffic volume growth.




Figure 6: JSMR’s upcoming projects – JORR2

Source: Company

The next growth driver will be Pandaan-Malang and Gempol Pasuruan, which could begin operations in 2020. These should also boost earnings further. Kontan reported that Waskita Karya (WSKT IJ, NR) is likely to be the contractor to build these toll roads.

Figure 7: JSMR’s upcoming projects in Java

Source: Company




Capex likely to decline in 2020

Since the construction of JSMR’s major toll roads are almost completed, we expect capex to decline from 2020 onwards. In 2018, the construction of six toll roads – located along the Trans-Java Toll Road – was completed. They have since begun operations.

In 2019, five toll roads in JORR, Medan, Manado, and Samarinda are scheduled for completion. In 2020, there will be only two JSMR toll road sections in the pipeline: Probolinggo-Banyuwangi and Jakarta-South Cikampek (Jati Asih-Sadang). We expect capex to soften to IDR20trn in 2020 from IDR32trn in 2019.

Figure 8: JSMR’s capex (IDRbn)


To manage cash flow – in the current stage of aggressive expansion – JSMR manages payments made for the construction of seven toll roads based on contractor pre-financing (CPF) contracts. As project owner, the company will pay construction costs to contractors once the construction process is completed.

Two toll roads concessions are under CPF contracts. They were delivered and started operating at end-2018: Solo-Ngawi and Batang-Semarang. They carried total project contract values of IDR22.4trn.

Toll roads scheduled for delivery in 2019 paid based on CPF contracts: Cengkareng-Kunciran JORR2, Kunciran-Serpong JORR2, Serpong-Cinere JORR2, Balikpapan-Samarinda, and the Jakarta-Cikampek elevated road. These have an estimated total contract value of IDR36.9trn. Other JSMR toll roads slated for deliver this year: Medan-Kualanamu-Tebing Tinggi, Manado-Bitung, and Pandaan-Malang. These are paid monthly, based on actual completion progress.

For toll roads to be delivered in 2020 – Probolinggo-Banyuwangi and Jakarta Cikampek Selatan Section 2 – JSMR said construction is likely to be paid based on CPF contracts.

Figure 9: JSMR toll roads under construction

Source: Company data

3,196 2,123 2,521

7,382

11,691

21,000

32,000

20,000

FY13 FY14 FY15 FY16 FY17 FY18F FY19F FY20F

-00

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Concession Section Contractor Payment Term Length (km) Estimated

Project

Contract

(IDRtrn)

Estimated

Operational

Progress Land

Acquisition

Progress

Construction

Cengkareng-Kunciran JORR2 Section 1 to 4 Wijaya Karya CPF 14.2 5.0 2019 50.03% 21.53%

Kunciran-Serpong JORR2 Section 1 Waskita Karya CPF

Section 2 Adhi Karya - Acset CPF

Serpong-Cinere JORR2 Section 1, 2 Waskita Karya CPF 10.1 2.2 2019 66.99% 45.63%

Medan-Kualanamu-Tebing Tinggi Section 7 PTPP and Adhi Karya Monthly based on actual

progress of completion

61.7 4.1

2019

96.17% 95.52%

Manado-Bitung Section 2A, 2B PTPP Monthly based on actual


39.9 4.7

2019

66.97% 25.75%

Pandaan-Malang Section 1 to 5 PTPP Monthly based on actual


38.5 6.0

2019

70.02% 90.51%

Balikpapan-Samarinda Section 2, 3, 4 Wijaya Karya CPF 99.4 10.0 2019 96.82% 74.86%

Jakarta-Cikampek elevated road Cikunir-Karawang Barat Waskita Karya - Acset CPF 36.4 16.2 2019 N/A 49.43%

Probolinggo-Banyuwangi Section 1 Not been decided CPF 46.1 5.5 2020 N/A N/A

Section 2 Not been decided CPF 59.5 7.1 2020 N/A N/A

Section 3 Not been decided CPF 66.4 8.0 2020 N/A N/A

Jakarta-Cikampek Selatan Section 2 (Jati Asih-Sadang) Not been decided CPF 10.0 1.2 2020 N/A N/A

11.2 3.5 2019 97.29% 69.39%




Time to benefit from aggressive expansion over the past four years

Since major toll roads to be delivered in 2018 and 2019 – the bulk of which are located within the Trans-Java and JORR networks (areas with high traffic volumes) – we see this year as the time for JSMR to benefit from the aggressive expansion of the last four years. The latter initiative has seen the company’s total toll road length increase more than 80%. As new toll roads become more matured, JSMR should have more room to restructure its assets to make the balance sheet healthier.

Bloomberg reported that Indonesian state investment company Bandha Investasi Indonesia and a foreign partner will allocate USD600m to invest in existing toll roads, according to State-Owned Enterprise Minister Rini Soemarno. The two parties will set aside USD300m each for the investment. The fund is expected to be ready in late Apr 2019. It was indicated that funds will be allocated JSMR and WSKT toll road projects. We believe this will reduce the possibility of the former acquire toll roads from the latter.

Flexibility in funding

JSMR has flexibility and experience in advanced fundraising. On top of taking out conventional bank loans, over the last four years the company has been engaged in the following:

i. Aug 2017 – The Jagorawi Future Revenue-Backed Securities (Kontrak Investasi Kolektif Efek Beragun Aset) issuance that amounted IDR2trn, 5-year term. Notably, Jagorawi’s revenue in 2018-2021F is estimated at IDR4trn, in which half of its future revenue is securitised in this fund raising. JSMR booked proceeds from this as deferred revenue, which is amortised at IDR400bn pa;

ii. Oct 2017 – Subsidiary Marga Lingkar Jakarta’s project bond that amounted to IDR1.5trn, comprising five series bonds (3-12 years terms) with coupons ranging between 7% and 9% pa;

iii. Dec 2017 – A Komodo Bond (IDR-denominated bond listed on the London Stock Exchange) that amounted to IDR4trn with a 3-year term and coupon of 7.5% pa;

iv. Jul 2018 – Mutual Fund Investment Limited Participation (Reksadana Penyertaan Terbatas or “RDPT”), which amounted to IDR3trn with a 5-year term and internal rate of return (IRR) of 10.25% pa. This RDPT includes 20% ownership stake in JSMR subsidiaries Ngawi Kertosono Jaya, Jasamarga Semarang Stem, and Jasamarga Solo Ngawi;

v. Aug 2018 – Divestment of 10% stake in subsidiary Jakarta Lingkar Barat Satu.

These fund-raising exercises have helped JSMR finance its aggressive expansion and manage its debt levels. We expect the company to continue its advanced external funding programme to finance CPF contracts that are due in 2019, as well as bond repayments in 2020. Its matured toll roads – eg Cawang-Tomang-Pluit (Jakarta Inner Ring Road), Soekarno-Hatta International Airport, Jakarta-Tangerang, and Purbaleunyi – are good candidates for asset securitisation.




Although rising, debts are manageable

We estimate JSMR’s D/E increasing to 3x at end-2019 and 3.2x at end-2020 vs 1.7x at end-2017. However, its debts levels are likely to stay below its covenant, which includes less than 5x D/E and a minimum 1.25x interest coverage ratio.

In our calculation, its interest coverage ratio should be 2.2x and 2.1x for 2019 and 2020.

Figure 10: JSMR’s debt (IDRbn) and interest coverage ratio (x)

Although the debt level could increase in 2019-2020, JSMR should still be able to maintain its interest coverage ratio above its covenant level

JSMR’s interest coverage ratio will start normalising in 2021F onwards, as its debt level should also begin to normalise – this is because it no longer requires high capex from 2021F onwards


Valuation

We use 35-year DCF, deriving IDR6,100 per share of FV, which implies 11.7-10.2x FY19F-20F EV/EBITDA. We use a 35-year timeframe to match the average expiry period of the concession rights of each it obtains from the Government. We assume no terminal value, because each toll will be handed back to the Government when the concession period is over.

JSMR is currently trading at 8.8-7.8x 2019F-2020F EV/EBITDA. Our IDR6,100 TP implies 11.7-10.2x FY19-20F EV/EBITDA. We believe this counter deserves to trade at a premium, given its high long-term earnings growth potential.

We note that the company has just finished its aggressive expansion, which extended its toll roads length 80% since 2015. The majority of these roads are to be delivered in 2018 and 2019.

During the early years of operations, the toll road businesses were in the red. However, new toll roads should earn the company high profits after a few years of being in operation. As at 2018, JSMR was in charge of 1,050km of fully-operated toll roads, compared to 578km of fully-operated toll roads as at 2014 – a notable 82% increase in just four years. Moreover, the company targets to add c.323km of fully-operated toll roads in 2019.

13,283 15,921

25,020

32,449

44,995

66,550

78,010

66,954 66,215

2.5 2.5

2.8

3.7

2.8

2.2

2.1

2.6

2.8

1.8

2.0

2.2

2.4

2.6

2.8

3.0

3.2

3.4

3.6

3.8

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

2014 2015 2016 2017 2018F 2019F 2020F 2021F 2022F

(x)(IDRbn)

Debt Interest coverage ratio




Figure 11: DCF valuation

Source: RHB

Figure 12: WACC breakdown

Source: RHB

2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F 2027F 2028F

1 2 3 4 5 6 7 8 9 10

(IDRbn)

EBIT 5,730 6,478 6,939 7,368 7,644 7,892 8,188 8,454 8,772 9,058

Tax on EBIT (1,719) (1,943) (2,082) (2,210) (2,293) (2,367) (2,457) (2,536) (2,632) (2,717)

Depreciation and Amortization 1,262 1,471 1,509 1,548 1,589 1,631 1,676 1,722 1,771 1,822

Capital Expenditures (32,387) (20,406) (1,175) (1,203) (1,233) (1,263) (1,295) (1,328) (1,362) (1,397)

Changes in Net Working Capital 6,232 7,337 1,817 (3,079) (2,180) (1,187) 2,573 3,299 4,121 4,067

Free Cash Flow (20,882) (7,064) 7,007 2,423 3,527 4,705 8,686 9,612 10,671 10,832

PV FCF (19,254) (6,005) 5,492 1,751 2,350 2,890 4,919 5,019 5,138 4,809

Sum of PV FCF 81,462

Enterprise value 81,462

Cash @end 2018 8,016

Debt @end 2018 (44,995)

Market Cap 44,484

o/s shares (bn shares) 7.3

Fair Value/share (IDR) 6,129

Implied PE 21.4 19.6

Implied PBV 2.1 1.9

Implied EV/EBITDA 11.7 10.2

WACC BREAKDOWN

% of Debt 70%

% of Equity 30%

Cost of Debt (Kd)

Kd Before Tax 9.0%

Marginal Tax Rate 30.0%

Kd After Tax 6.3%

Cost of Equity (Ke)

Risk free rate 8.0%

Market Risk Premium 5.0%

Beta 0.9

Liquidity Premium 1.0%

Ke 13.5%

WACC 8.5%

TG 2%




Figure 13: Regional peer comparison I

Source: Bloomberg, RHB

JASA MARGA (PERSERO) TBK PT INDONESIA JSMR IJ PT Jasa Marga (Persero) Tbk. operates the Indonesian

highway system. The Company collects tolls,

maintains the road surfaces, and offers towing and

ambulance services.

INDONESIA PEERS

NUSANTARA INFRASTRUCTURE TBK INDONESIA META IJ EQUITY PT Nusantara Infrastructure Tbk is an investment holding

company. The Company holds subsidiaries engaged in toll

road, sea port, and other infrastructure related business.

REGIONAL PEERS

JIANGSU EXPRESS CO LTD-H CHINA 177 HK EQUITY Jiangsu Expressway Company Limited operates highway

businesses. The Company provides toll highway

investment, construction, and maintenance services.

Jiangsu Expressway also conducts highway passenger

transportation, refueling, catering, car repair, and

advertisement businesses.

SHENZHEN EXPRESSWAY CO LTD-A CHINA 600548 CH EQUITY Shenzhen Expressway Company Limited offers toll

expressway and road construction and investment services.

The Company provides expressway operation,

maintenance, and service station leasing services.

Shenzhen Expressway also conducts real estate

development, advertising, and engineering consulting

businesses.

SICHUAN EXPRESSWAY CO-H CHINA 107 HK EQUITY Sichuan Expressway Company Limited offers expressway

investment and construction services. The Company builds

toll highway, bridge, tunnel, and other traffic projects.

Sichuan Expressway also conducts city operation, energy,

media, energy, and financial investment businesses.

YUEXIU TRANSPORT INFRASTRUCT HONG KONG 1052 HK EQUITY Yuexiu Transport Infrastructure Ltd., through its

subsidiaries, invests in, develops, operates, and manages

toll highways, expressways, and bridges in China.

ANHUI EXPRESSWAY CO LTD-H CHINA 995 HK EQUITY Anhui Expressway Co. Ltd. principally holds, operates and

develops toll expressways and highways in Anhui province

in China.

GAMUDA BHD MALAYSIA GAM MK EQUITY Gamuda Berhad is an investment holding and civil

engineering construction company. Through its

subsidiaries, the Company provides earthwork construction,

manufactures and supplies road surfacing materials, and

operates quarry and road laying projects. Gamuda also has

operation in hiring and rental of plant and machinery,

develops properties, and manufactures and sells paper.

LINGKARAN TRANS KOTA HLDGS MALAYSIA LTK MK EQUITY Lingkaran Trans Kota Holdings Berhad is an investment

holding company. The Company, through its subsidiaries,

designs and constructs Lebuh Raya Damansara-Puchong

and manages toll operations. The Company also provides

highway maintenance services.

Company Name Country of Origin Bloomberg Ticker Company Description




Figure 14: Regional peer comparison II

Source: Bloomberg, RHB

Figure 15: JSMR’s 5-year rolling forward EV/EBITDA

JSMR is currently trading at 8.8x FY19F EV/EBITDA, -1.2SD below its 5-year mean

Source: RHB

Figure 16: JSMR’s 5-year rolling forward P/E

JSMR is currently trading at 17.4x FY19F P/E, -0.8SD below its 5-year mean

Source: RHB

EPS growth

(%)

PER

(x)

PEG

(x)

EV/EBITDA

(x)

PBV

(x)

ROE

(%)

Dividend

yield (%)

EPS growth

(%)

PER

(x)

PEG

(x)

EV/EBITDA

(x)

PBV

(x)

ROE

(%)

Dividend

yield (%)

JASA MARGA (PERSERO) TBK PT 4,820 2,475 (6.7) 17.1 (2.6) 8.9 1.6 9.5 1.8 9.1 15.7 1.7 7.8 1.5 9.6 1.9

INDONESIA PEERS

NUSANTARA INFRASTRUCTURE TBK 212 266 (54.6) 42.9 (0.8) 16.6 0.8 2.0 0.5 20.0 35.8 1.8 12.9 0.8 2.9 0.5

REGIONAL PEERS

JIANGSU EXPRESS CO LTD-H 11 7,337 (0.8) 11.5 (13.9) 9.2 1.8 15.8 5.1 2.1 11.3 5.3 8.9 1.7 15.0 5.1

SHENZHEN EXPRESSWAY CO LTD-A 9 2,730 (26.8) 9.8 (0.4) 7.6 1.2 12.4 5.1 12.1 8.7 0.7 7.0 1.1 12.8 5.0

SICHUAN EXPRESSWAY CO-H 3 1,428 6.7 6.8 1.0 7.7 0.4 6.2 5.1 3.1 6.6 2.1 7.6 0.4 6.1 5.1

YUEXIU TRANSPORT INFRASTRUCT 6 1,278 9.2 7.3 0.8 6.2 0.7 10.2 6.8 7.7 6.7 0.9 5.9 0.7 10.4 7.2

ANHUI EXPRESSWAY CO LTD-H 5 1,275 0.7 6.2 8.4 3.5 0.6 10.7 5.6 (16.2) 7.4 (0.5) 3.5 0.6 8.4 4.7

GAMUDA BHD 3 1,641 14.3 10.8 0.8 13.3 0.9 8.1 4.2 6.4 10.1 1.6 12.6 0.8 8.1 4.3

LINGKARAN TRANS KOTA HLDGS 4 576 7.6 9.3 1.2 6.0 N/A 23.3 6.0 4.9 8.8 1.8 6.0 #N/A N/A 21.3 6.2

19,006 (3.2) 11.3 (5.0) 8.6 1.3 12.4 4.7 4.4 10.7 2.8 8.1 1.2 12.0 4.7

2020F

Company NamePrice

(Local crc)

Market cap

(USDm)

2019F




Scenario analysis

We use traffic volume growth as the key driver in our scenario analysis. For our base case, traffic volume should grow 13% YoY for new toll roads and 1% YoY for mature toll roads.

Figure 17: Scenario analysis

Traffic volume for new tolls

Traffic volume for new tolls

Traffic volume in 2019F-2021F (m units)

Net earnings in 2019F-2021F (IDRbn)

FV/share (IDR)

Base scenario +1% YoY +13% YoY 1,135-1,178 2,092-2,939 6,100

Best scenario +2% YoY +21% YoY 1,145-1,212 2,122-3,143 7,700

Worst scenario +0% YoY +5% YoY 1,126-1,145 2,062-2,753 4,800

Source: RHB

For the best-case scenario, we assume traffic volume growing 21% YoY for the new toll roads and 2% YoY for mature ones. Our 35-year DCF derived IDR7,700 per share in FV implies 13.3-11.4x FY19F-20F EV/EBITDA.

For the worst-case scenario, we assume traffic volume to grow 5% YoY for the new toll roads and 0% YoY for the mature ones. Our 35-year DCF derived IDR4,800 per share in FV implies 10.3-9.3x FY19-20F EV/EBITDA.

Risks

Risks to our call include:

i. Risks arising from the land acquisition process;

ii. Risks associated with toll road construction projects;

iii. Change in government regulations;

iv. Significant cash outflows to provide bridge financing for land acquisitions to the Government;

v. Major expansion programme could make investments, acquisitions, divestitures or other corporate actions in future involve considerable risks;

vi. Revenue and earnings are affected by applicable toll tariffs and revisions to such tariffs.




Historical & Financial Forecasts

Figure 18: JSMR’s revenue forecasts

3-year revenue CAGR is at 7.3% for 2014-2017

We expect revenue to grow at a 3-year CAGR of 16.6% in 2017-2020, backed by more toll roads starting operations from 2018 onwards


Figure 19: JSMR’s toll revenue breakdown (9M18)

JSMR’s toll revenue as at 9M18 mainly comes from the Purbaleunyi section (15.5%), comprising the Cikampek-Padalarang and Padalarang-Cileunyi, Jakarta-Cikampek (13%), Jakarta-Tangerang (9.5%), and Jakarta-Bogor (9.1%) stretches

Toll subsidiaries notably contributed 13.8% of the company’s 9M18 total toll revenues


7,228 7,631

8,832 8,922

11,105

12,577

14,140

6,000

7,000

8,000

9,000

10,000

11,000

12,000

13,000

14,000

15,000

2014 2015 2016 2017 2018F 2019F 2020F

(IDRbn)

CAGR 2017-20F= 16.6%

CAGR 2014-17= 7.3%

Jakarta - Bogor - Ciawi, 9.1%

Jakarta -Cikampek,

13.0%

Jakarta -Tangerang,

9.5%

Cawang -Tomang - Pluit,

10.4%

Purbaleunyi, 15.5%

Palimanan -Kanci, 2.2%

Semarang Seksi A,B,C, 1.7%

Surabaya -Gempol, 4.9%

Belawan -Medan -Tanjung

Morawa, 1.7%

JORR, 18.1%

Subsidiaries, 13.8%




Figure 20: JSMR’s EBITDA forecasts

JSMR’s 3-year EBITDA CAGR is at 11.3% for 2014-2017

We expect its 3-year EBITDA CAGR at 14% for 2017-2020F

EBITDA margins have been higher than 50% since 2014. It peaked at 60% in 2017 from gains on divestments recorded in its operating income

In 2018F, JSMR’s EBITDA margin could narrow, as new toll roads began operations that year. Nascent roads require new opex, while the tariff is at a low, introductory rate. That said, we expect EBITDA margins to normalise from 2019 onwards


Figure 21: JSMR’s net profit forecasts

Earnings have has been growing steadily at a 3-year CAGR of 15% in 2014-2017

We see slower earnings growth, ie at a CAGR of 7.5% in 2017-2025F, driven by higher financing costs from increased debt levels. However, earnings growth should accelerate from 2025F onwards, in line with the growing number of matured toll roads

We also forecast net margin to normalise in 2021F onwards, following the normalisation of debt levels and finance costs from that period onwards


3,889 4,192

5,025 5,361

5,956

6,992

7,949

53.8%

54.9%

56.9%

60.1%

53.6%

55.6%

56.2%

53.0%

54.0%

55.0%

56.0%

57.0%

58.0%

59.0%

60.0%

61.0%

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2014 2015 2016 2017 2018F 2019F 2020F

(IDRbn)

EBITDA EBITDA Margin

1,422 1,466

1,889

2,200 2,218 2,092

2,284

2,939

3,266

3,503 3,692

3,936

19.7%

19.2%

21.4%

24.7%

20.0%

16.6%16.2%

19.5%

20.5%

21.3%21.8%

22.6%

15.0%

17.0%

19.0%

21.0%

23.0%

25.0%

27.0%

1,200

1,700

2,200

2,700

3,200

3,700

4,200

2014 2015 2016 2017 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F

(IDRbn)

Net Profit Net Margin




Figure 22: JSMR’s DuPont analysis in 2019F

We expect JSMR to generate 9.3% in 2019F ROE, backed by strong financial leverage

The company’s largest asset is its intangible assets (concession rights) and other receivables (receivables the Government will pay to the company for land acquisition costs)

Source: RHB

9.3%

5.6

0.1

16.6%

0% 100% 200% 300% 400% 500% 600%

ROE

Financial Leverage

Asset Turnover

Net Margin

x

x




Company Background JSMR was established in 1978 to support Indonesia’s development by building the country’s road networks. Initially, its main responsibilities were to plan, build, operate, and maintain toll roads and their facilities. Until 1987, the company was the only toll road operator in Indonesia. In 2004, with the establishment of Indonesian Toll Road Authority, the Government took over the authority role over such ventures.

Today, JSMR functions fully as a toll road operator and developer. It is the largest toll road operator in Indonesia, and runs operations in Sumatera, Java, Kalimantan, Bali, and Sulawesi.

Figure 23: Shareholding structure


JSMR remains consistent in expanding its business, as well as integrating new businesses and projects into its portfolio. The company also operates in a highly-regulated and capital-intensive industry that creates a high barrier of entry into the domestic toll road market. In addition, the payback period for a typical toll road investment ranges between five and 20 years. Toll road operators generally book negative cash flows during the first 10 years of operations.

Being majority-owned by the Government, JSMR has strong support in developing the toll road infrastructure in Indonesia, such as:

i. Being awarded – at no cost – 13 initial toll road concessions in 2004;

ii. Implementing reforms in land procurement regulations that places the responsibility of land acquisition – required for the construction of new toll road projects – on the Government;

iii. Classification of new toll roads under construction as national strategic projects.

JSMR’s toll road portfolio covers diverse geographic regions, including toll roads providing access to and around most populated regions. This includes Jakarta, Surabaya, Semarang, Bali, and Medan. This year, the company is to commence on new toll roads in Samarinda and Manado. It is also benefiting from increased economic growth in all regions across Indonesia.




Figure 24: JSMR’s toll roads portfolio


Under Jokowi’s administration, the number of government toll road projects has increased. JSMR has benefited from this, with multiple government projects operated under its management in recent years. The company has also won multiple projects to build and operate toll roads across Indonesia – most in densely-populated areas in Java, Bali, Sumatra, Kalimantan, and Sulawesi.

Concession Length (km) Operator Ownership

Jagorawi 59.0 Jagorawi Branch 99.90%

Jakarta-Tangerang 33.0 Cawang-Tangerang-Cengkareng Branch 99.90%

Prof.Dr.Ir. Sedyatmo 14.3 Cawang-Tangerang-Cengkareng Branch 99.90%

Jakarta Inner Ring Road 23.6 Cawang-Tangerang-Cengkareng Branch 99.90%

Jakarta-Cikampek 83.0 Jakarta-Cikampek Branch 99.90%

Padaleunyi 64.4 Purbaleunyi Branch 99.90%

Cipularang 58.5 Purbaleunyi Branch 99.90%

Palikanci 26.3 Palikanci Branch 99.90%

Semarang 24.8 Semarang Branch 99.90%

Surabaya-Gempol 49.0 Surabaya-Gempol Branch 99.90%

Belmera 42.7 Belmera Branch 99.90%

Jakarta Inner Ring Road 28.3 PT Jalan Tol Lingkar Luar Jakarta 99.90%

Ulujami-Pondok Aren 5.6 PT Jalan Tol Lingkar Luar Jakarta 99.90%

JORR W2 Utara 7.7 PT Marga Lingkar Luar Jakarta 65.00%

Bogor Outer Ring Road 12.0 PT Marga Sarana Jabar 55.00%

Cengkareng-Kunciran 14.2 PT Jasamarga Kunciran Cengkareng 76.20%

Kunciran-Serpong 11.2 PT Marga Trans Nusantara 60.00%

Semarang-Solo 72.6 PT Trans Marga Jateng 58.91%

Surabaya-Mojokerto 36.3 PT Jasamarga Surabaya Mojokerto 55.50%

Gempol-Pasuruan 34.2 PT Jasamarga Gempol Pasuruan 98.80%

Gempol-Pandaan 13.6 PT Jasamarga Pandaan Tol 92.20%

Nusa Dua-Ngurah Rai-Benoa 9.7 PT Jasamarga Bali Tol 55.00%

Medan-Kualanamu-Tebing Tinggi 61.7 PT Jasa Marga Kualanamu Tol 55.00%

Solo-Ngawi 90.4 PT Jasamarga Solo Ngawi 40.00%

Ngawi-Kertosono 87.0 PT Ngawi Kertosono Jaya 40.00%

Cinere-Serpong 10.1 PT Cinere Serpong Jaya 55.00%

Batang-Semarang 75.0 PT Jasamarga Semarang Batang 40.00%

Balikpapan-Samarinda 99.4 PT Jasamarga Balikpapan Samarinda 59.00%

Manado-Bitung 39.9 PT Jasamarga Manado Bitung 65.00%

Pandaan-Malang 37.6 PT Jasamarga Pandaan Malang 60.00%

Jakarta-Cikampek II Elevated 36.4 PT Jasamarga Jalanlayang Cikampek 80.00%

Probolinggo-Banyuwangi 172.9 PT Jasamarga Probolinggo 94.80%

Jakarta-Cikampek II South 64.0 PT Jasamarga Japek Selatan 80.00%




Figure 25: JSMR’s milestones

Year Description

1978 JSMR was established. Its business was in managing providing maintenance and procurement services related to the toll road network. It began operating Jagorawi, the first toll road in Indonesia.

1983 Semarang toll road kicked off operations.

1984 Jakarta-Tangerang toll road began operations, as well as the Dr Ir Sedyatmo Toll Road (airport toll road).

1986 Surabaya-Gempol toll road began operating, as well as Belmera (Belawan-Medan Tanjung Morawa).

1987 The Government opened up opportunities to the private sector to participate in toll road developments through the build, operate and transfer (BOT) system. JSMR began managing operations at the Jakarta Inner City Toll Road (Jakarta Inner Ring Road), in stages.

1988 Jakarta-Cikampek toll road began operations.

1990 Padaleunyi (Padalarang-Cileunyi) toll road commence operating.

1991 Jakarta Outer Ring Road (JORR) - Section S Pondok Pinang Lenteng Agung toll road kicked off operations.

1998 Palikanci (Palimanan-Kanci) toll road began operations.

2002 Jalan Tol Lingkar Luar Jakarta (JLJ) was established.

2003 Cipularang (Cikampek-Purwakarta-Padalarang) toll road began operating.

2004 Role of regulating authority was returned to the Government (Department of Public Works, ie Toll Road Regulatory Agency/ BPJT).

2006 The signing of toll road concession agreements (PPJT) for Bogor Outer Ring Road, PPJT Semarang-Solo, PPJT Gempol-Pasuruan, PPJT Gempol Pandaan, PPJT JORR W2 North, PPJT Surabaya-Mojokerto, and other 13 toll roads operated by the company

2007 JSMR changes its logo to better illustrate its focus on modernisation and transformation. It was also listed on the Indonesia Stock Exchange. In the same year, the JORR toll road was integrated with the Ulujami-Cilincing road.

2008 Signing of the Kunciran-Serpong PPJT.

2009 Operations kick off at the Bogor Outer Ring Road Toll Road (Section 1 Sentul South-Kedung Halang Toll Road); implementation of e-Toll Card, signing of Cengkareng-Kunciran PPJT, and acquisition of Surabaya-Mojokerto Toll Road.

2010 Acquisition of Jasamarga Tollroad Maintenance (previously Jasa Layanan Pemeliharaan).

2011 Operations begin at Surabaya-Mojokerto and Semarang-Solo toll roads. Also, the Nusa Dua-Ngurah Rai-Benoa PPJT is signed.

2012 Implementation of e-Toll Pass

2013 Operation of Nusa Dua-Ngurah RaiBenoa Toll Road (Toll Road Mandara) and JORR W2 North Toll Road (Kebon Jeruk Ciledug Section); establishment of Jasamarga Property

2014 Operation of Semarang-Solo Toll Road (Section 2 of Ungaran Bawen Toll Road), Bogor Outer Ring Road Toll Road (Section 2A Kedung Halang-Kedung Badak), and JORR W2 North Toll Road (Ciledug-Ulujami Section). JSMR wins the tender for the concession rights to manage the Medan-Kualanamu-Tebing Tinggi Toll Road. Also, the PPJT for the Surabaya-Madura Toll Bridge Operation is signed.

2015 Acquisition of Solo-Ngawi, Ngawi-Kertosono, and Cinere-Serpong toll roads. Operations begin at the Gempol-Pandaan toll road. The company also establishes Jasamarga Tollroad Operator (previously Jasa Layanan Operasi).

2016 Operation of Surabaya-Mojokerto Section 4 of Krian-Mojokerto Section. JSMR wins the concession for the Batang-Semarang, Balikpapan-Samarinda, Manado-Bitung, Pandaan-Malang, and Jakarta-Cikampek II elevated toll roads. In the same year, toll road transaction systems from Jakarta to Brebes are integrated.

2017 Operation of Semarang-Solo toll road (section of Bawen-Salatiga), Medan-Kualanamu-Tebing Tinggi toll road (section of Kualanamu-Sei Rampah), Gempol-Pasuruan toll road (section of Gempol-Rembang), Surabaya-Mojokerto toll road (section of Sepanjang-Krian). JSMR wins the concession and signs the PPJT for Probolinggo-Banyuwangi (172.9 km) and Jakarta-Cikampek II South (64 km) toll roads, ie projects initiated by the company. The operation of toll roads using non-cash transactions, in line with the Government’s national non-cash programme, is fully implemented. JSMR also issues Bond I Marga Lingkar Jakarta of 2017, a bond issued at the project level/JSMR subsidiary Marga Lingkar Jakarta (Project Bond) for JORR W2 North Toll Road (Kebon Jeruk-Ulujami). Also achieves securitisation of Jagorawi Toll Revenues through a public offering of collective investment contract (KIK) of asset-backed securities (EBA) Mandiri JSMR01. Issuance of IDR Global Bond under the name Komodo Bond on the London Stock Exchange.

Source: Company, RHB




Figure 26: Board of directors

Name Position Description

Desi Aryani

President director Desi Aryani has been the company's president director since 29 Aug 2016. Previously, she was the director of operations I at PT Waskita Karya (2013-2016) and director of operations II in the same company from 2011 to 2012. She has a Bachelor's degree in Civil Engineering from University of Indonesia and Master's degree in Management from Prasetya Mulya.

Donny Arsal

Director of finance Donny Arsal has been appointed as JSMR's director of finance since 15 Mar 2017. Previously, he served as the director-head of investment banking at PT Mandiri Sekuritas (2010-2017), and associate director from 2004 to 2010. Prior to that, he was an assistant vice president at PT Mandiri Sekuritas (2003). He obtained a Bachelor in Economics from University of Indonesia.

Mohammad Sofyan

Director of operation I Mohammad Sofyan has been appointed as director of operation I since 15 March 2017. Previously, he served as the corporate secretary (2015-2017), vice-president of corporate planning (2012-2015), head of monitoring and evaluation of the Corporate Work Programme at the Corporate Planning Bureau (2010-2012), and head of technology development (analysis of corporate information) at the technology bureau (2008-2010) in the company. He has a Bachelor's degree in civil engineering from Ten November Institute of Technology Surabaya, Master's in Project Management from University of Indonesia and Masters of business studies and information technology from the University of Melbourne.

Subakti Syukur

Director of operation II Subakti Syukur has been the company's director of operation II since 29 Aug 2016. Previously, he was the president director of Marga Lingkar Jakarta (2014-2016), general manager of the Tomang-Cengkareng branch (2005-2006 and 2008-2014) and head of the Surabaya-Gempol branch (2006-2008). He has a Bachelor's of Civil Engineering from Bandung Institute of Technology and Master's degree in management from Indonesia Christian University.

Adrian Priohutomo

Director of development Adrian Priohutomo was appointed as the director of development in 2018. Previously, he served as the chairman of Permata Graha Nusantara (2014-2018). He obtained a Bachelor's Degree in planology engineering from Bandung Institute of Technology.

Alex Denni

Director of human resources & general affairs

Alex Denni has been director of human resources and general affairs since 5 Sep 2018. Previously, he served as chief human capital officer at Bank Negara Indonesia (2014-2018) dan chief learning officer & head of corporate at University Bank Mandiri. He has a Bachelor's degree in agro-industry management from Bogor Agricultural University, Master's degree in Management from Atma Jaya University and PhD in human capital from Bogor Agricultural University





Figure 27: Board of commissioners

Name Position Description

Sapto Amal Damandari

President commissioner/independent

Sapto Amal Damandari has been JSMR's president commissioner since 5 Sep 2018. Currently, he also the president commissioner of PT Pelabuhan Indonesia I. Previously, he served as vice chairman of the Audit Board of the Republic of Indonesia (2014-2017). He has a Bachelor of Economics degree from University of Gajah Mada.

Agus Suharyono

Commissioner Agus Suharyono has been appointed as commissioner since 31 Dec 2016. Currently, he also serves as the assistant deputy for Energy, Logistics, Regions, and Tourism II, under the Ministry of State-Owned Enterprises. Previously, he served as a commissioner Pelabuhan Indonesia II (2014-2016), and Hotel Indonesia Natour (2000-2003). He has a Bachelor's degree from Brawijaya University and a Master's in Agricultural Economics from the University of Maine.

Anita Firmanti Eko Susetyowati

Commissioner Anita Firmanti Eko Susetyowati has been appointed as a commissioner of the company since 5 Sep 2018. She has a Bachelor's degree in forestry from Bogor Agricultural University and a Master's in Technology from Bandung Institute of Technology.

Vincentius Sonny Loho

Independent commissioner Vincentius Sonny Loho has been appointed as a commissioner since 10 Apr 2018. Previously, he served as a director-general in the Ministry of Finance. He has a Bachelor's degree from Sekolah Tinggi Akutansi Negara (STAN) and a Master's of Public Management from Carnegie Mellon University.

Sugiharjo

Commissioner Sugiharjo has been appointed as a commissioner since 15 Mar 2017. Currently, he also serves as the general secretary of the Ministry of Transportation. Previously, he served as expert staff on logistics and multi-modes in the Ministry of Transportation (2014-2015) and was the director of traffic and transportation in the same ministry (2012-2014). He has a Bachelor's degree in civil engineering from the University of Indonesia and Masters in public policy administration from University of Indonesia.

Muhammad Sapta Murti

Commissioner Muhammad Sapta Murti has been appointed as commissioner since 30 Mar 2016. Currently, he also serves as a deputy official in law and legislation, in the Ministry of State Secretariat. He is also a non-permanent lecturer at the Trisakti University's law faculty, as well as the University of Indonesia and Pelita Harapan University law faculty (post-graduate). Previously, he was a member of the board of commissioners at Asuransi Jiwasraya (2008-2016). He has a Bachelor's degree in Civil/Agrarian Law from Trisakti University, a Master of Arts majoring in rural development from Reading University, Master of Notary from University of Indonesia and PhD in Law Science from Padjadjaran University.





Industry Outlook

Growing toll road construction in Indonesia

Toll road construction has increased significantly in the past few years, supported by a government that prioritises toll roads as a national strategic project. In the last five years, the Government’s budget for infrastructure has been increased – it is still growing in 2019. The total budget for 2019 for infrastructure is IDR145trn, which marks a 1.1% increase from 2018’s IDR410.4trn.

Over the last four years, 947km of toll roads have been built. The Government invested IDR10.5trn in Hutama Karya for its major toll road in Sumatra. It also assumed responsibility for the development of Indonesian toll roads and announced its intention to invite state-owned and private owned companies to participate in the construction and operation of concession toll roads.

Figure 28: The Government’s many roles in toll road development

Source: Company

Based on the toll operator project schedule, the 2018 and 2019 operational years are a time for major new toll roads to be delivered. In our calculation, the total length of new total roads to commence operations stand at 886km in 2018 and 639km in 2019. These new toll roads mainly related to the Trans-Java and JORR network.

Another massive new toll road delivery is scheduled for 2025, with a total length of 853km – the bulk is related to the Trans-Sumatra toll road, which is mainly being built by Hutama Karya.

Figure 29: Indonesia toll road length (km) Figure 30: Toll roads starting operations each year (km)

Source: Company data, RHB Source: Company data, RHB

0

500

1000

1500

2000

2500

3000

3500

4000

4500

1978 1984 1987 1990 1996 1999 2003 2009 2011 2014 2016 2018 2020 2025

(km)

5925 47 43 24

83 7928

7232

7 659

24 1245 47

1034

132

5

258

886

639

131

242

853

0

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200

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1978

1983

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1991

1996

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2001

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2008

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2011

2013

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2015

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2017

2018

2019

2020

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(km)




JSMR has the largest toll road concession, with a total length of 1,498km. This is followed by Hutama Karya and WSKT. JSMR”s toll road concessions are mainly located in Java, in regions with high traffic volumes. Hutama Karya’s toll road concessions are mainly located in Sumatra.

In terms of toll roads in operation, JSMR also has the largest portfolio – with a total length of 1,050km. This is followed by WSKT (544km) and Astra Infrastructure (303km).

Figure 31: Toll road concessions – by company (km) Figure 32: Operational toll roads – by company

Source: Company data, RHB Source: Company data, RHB

We believe 2019 is a year worth watching, as the Apr 2019 presidential election is looming. As mentioned earlier, the toll road business may benefit from government support. However, there are also risks, as there is no assurance that the Government will control and provide influence in a way that benefits such road operators. As infrastructure development is a major priority, the Government may request these companies – for social welfare and policy reasons – to construct additional toll roads that may not be financially feasible.

Toll roads reduce transportation cost and shorter travelling time

Based on our analysis, travellers can save up to 60% of their Jakarta-Surabaya travel costs if they opt to use the Trans-Java Toll Road. This is assuming estimated costs for tariff roads and petrol are IDR1,100,000 per trip. The cost can decrease if there are more people in a car – it can go as low as IDR183,000 per person, with six in a vehicle (Figure 34).

We see this is as positive for tourism and travel transportation – as travellers can use mini-buses and similar vehicles – which can accommodate up to 12 people. Other than cost savings, travellers can also save up to 7.5 hours of travel time compared to the normal Pantura (North Shore) route, due to the toll roads having less traffic and better road quality.

According to the latest policy announced by the Ministry of Public Works & Public Housing on 14 Jan 2019, estimated toll-road tariffs for Jakarta to Surabaya range between IDR580,000 and IDR1,390,000, depending on classification of vehicles. This translates to an average tariff per km of IDR748 to IDR1,640 per km. The second classification (truck with two axles) is more expensive, approximately 50% more than the first (ie sedans, jeeps, pick-ups/small trucks, and buses). The fifth classification (truck with five axles) is cheaper than our first estimate prior to the announcement of the IDR1,520,000 tariff, which seen to be positive, ie the Government is supportive of logistics costs along the Trans-Java route.

34

132

210

354

967

1,374

1,498

0

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1000

1200

1400

1600

NusantaraInfrastructure

Citra MargaNusaphala

Persada

Wijaya Karya Astra Infra WaskitaKarya

HutamaKarya

Jasamarga

(km)

3472 57

303

544

206

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0

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NusantaraInfrastructure

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Wijaya Karya Astra Infra Waskita Karya Hutama Karya Jasamarga

(km)




Figure 33: Breakdown of Jakarta-Surabaya toll road tariffs

Source: Company data, Tribunnews, RHB

Figure 34: Comparison costs of several transportation options for Jakarta-Surabaya routes

Note: Cost for cars includes tariff toll road and petrol costs, assuming c.65 litres at IDR7,650 per litre

Source: RHB

Jakarta - Surabaya Distance (km) Class I Class II Class III Class IV Class VJakarta - Cikampek 72.00 15,000 23,500 30,000 37,000 44,000 Cikopo - Palimanan 116.75 102,000 153,000 204,000 255,000 306,000 Palimanan - Kanci 26.00 12,000 15,000 21,000 27,000 32,000 Kanci - Pejagan 35.00 29,000 43,500 43,000 58,000 58,000 Pejagan - Pemalang 57.50 57,000 86,500 86,500 115,000 115,000 Pemalang - Batang 39.19 39,000 59,000 59,000 78,500 78,500 Batang - Semarang 75.00 75,000 112,500 112,500 150,000 150,000 Semarang - Solo 72.64 33,000 49,500 58,000 75,000 84,000 Solo - Ngawi 90.43 86,500 129,500 129,500 173,000 173,000 Ngawi - Kertosono - Kediri 117.40 52,000 78,000 78,000 104,000 104,000 Jombang - Mojokerto 40.50 46,000 69,000 92,000 115,000 138,000 Mojokerto - Surabaya 36.27 36,000 53,500 71,500 89,500 107,500 Subtotal 778.68 582,500 872,500 985,000 1,277,000 1,390,000

Remarks: Class I Sedan, jeep, pick-up/ small truck and busClass II Truck with two axles Class III Truck with three axles Class IV Truck with four axles Class V Truck with five axles

Toll-road Tariffs (IDR)

183,333 200,000

250,000 275,000

430,000

550,000

730,000

1,100,000

11.0 11.5

18.0

11.0

9.5

11.0

3.5 3.5

0

2

4

6

8

10

12

14

16

18

20

100,000

300,000

500,000

700,000

900,000

1,100,000

1,300,000

CarTrans Jawa routes

(6 people)

TrainEconomy class

BusPantura routes


(4 people)

TrainExecutive class


(2 people)

AirplanesBudget airline

AirplanesFull-service airline

Length (hour) Prices (IDR)

Estimate cost (IDR) Travel time (hour)




Competition with other infrastructure modes

The toll road business faces competition from non-road modes of transportation, such as railways and alternative road networks. The Government is developing a railway line – commonly known as the Light Rail Transit (LRT) – that connects Cawang to Cibubur, East Bekasi, and Dukuh Atas. This is expected to commence operations in 2019.

Certain sections of the LRT will run parallel to the Jagorawi and Jakarta-Cikampek toll roads, and may also compete with the Cawang-Tomang-Pluit toll road for access into Central Jakarta. In addition, the Government is developing a railway connecting Jakarta and Bandung, which is expected to commence operations in 2020 – this may compete with the Jakarta-Cikampek and Cikampek-Padalarang Toll Roads.

Figure 35: Indonesian railway passenger trends

Source: Source: CEIC data

However, we do not believe that the above alternative modes of transportation pose a material threat to the toll roads business. This is because we think the majority of travellers prefer to drive their own vehicles due to the greater convenience and privacy.

In addition, traveling by train requires the traveller to tailor his/her schedule to meet pre-set departure times, as well as arrange for other modes of transportation to travel to and from the train stations from their departure points and ultimate destinations.

203 199 202 216

278

326352

393

-5

0

5

10

15

20

25

30

0

50

100

150

200

250

300

350

400

450

2010 2011 2012 2013 2014 2015 2016 2017

Railway Passengers (LHS) Growth (RHS)(Unit m) (%)

25

RHB Guide to Investment Ratings

Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however

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26

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RHB and/or its subsidiaries are not liquidity providers or market makers for the subject company (ies) covered in this report except for: (a) - RHB and/or its subsidiaries have not participated as a syndicate member in share offerings and/or bond issues in securities covered in this report in the last 12 months except for: (a) - RHB has not provided investment banking services to the company/companies covered in this report in the last 12 months except for: (a) - Thailand RHB Securities (Thailand) PCL and/or its directors, officers, associates, connected parties and/or employees, may have, or have had, interests and/or commitments in the securities in subject company(ies) mentioned in this report or any securities related thereto. Further, RHB Securities (Thailand) PCL may have, or have had, business relationships with the subject company(ies) mentioned in this report. As a result, investors should exercise their own judgment carefully before making any investment decisions. Indonesia PT RHB Sekuritas Indonesia is not affiliated with the subject company(ies) covered in this report both directly or indirectly as per the definitions of affiliation above. Pursuant to the Capital Market Law (Law Number 8 Year 1995) and the supporting regulations thereof, what constitutes as affiliated parties are as follows: 1. Familial relationship due to marriage or blood up to the second degree, both

horizontally or vertically; 2. Affiliation between parties to the employees, Directors or Commissioners of the

parties concerned; 3. Affiliation between 2 companies whereby one or more member of the Board of

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controlling or being controlled by the Company; 5. Affiliation between 2 companies which are controlled, directly or indirectly, by

the same party; or 6. Affiliation between the Company and the main Shareholders. PT RHB Sekuritas Indonesia is not an insider as defined in the Capital Market Law and the information contained in this report is not considered as insider information prohibited by law. Insider means: a. a commissioner, director or employee of an Issuer or Public Company; b. a substantial shareholder of an Issuer or Public Company; c. an individual, who because of his position or profession, or because of a

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d. an individual who within the last six months was a Person defined in letters a, b or c, above.

Singapore RHB Research Institute Singapore Pte Ltd and/or its subsidiaries and/or associated companies do not make a market in any securities covered in this report, except for: (a) - The staff of RHB Research Institute Singapore Pte Ltd and its subsidiaries and/or its associated companies do not serve on any board or trustee positions of any issuer whose securities are covered in this report, except for: (a) - RHB Research Institute Singapore Pte Ltd and/or its subsidiaries and/or its associated companies do not have and have not within the last 12 months had any corporate finance advisory relationship with the issuer of the securities covered in this report or any other relationship (including a shareholding of 1% or more in the securities covered in this report) that may create a potential conflict of interest, except for: (a) - Hong Kong The following disclosures relate to relationships between RHBHK and companies covered by Research Department of RHBSHK and referred to in this research report: RHBSHK hereby certifies that no part of RHBSHK analyst compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. RHBHK had an investment banking services client relationships during the past 12 months with: -. RHBHK has received compensation for investment banking services, during the past 12 months from: -. RHBHK managed/co-managed public offerings, in the past 12 months for: -. On a principal basis. RHBHK has a position of over 1% market capitalization of: -.

27

Additionally, please note the following: Ownership and material conflicts of interest: RHBSHK policy prohibits its analysts and associates reporting to analysts from owning securities of any company covered by the analyst. Analyst as officer or director: RHBSHK policy prohibits its analysts, and associates reporting to analysts from serving as an officer, director, advisory board member or employee of any company covered by the analyst. RHBHK salespeople, traders, and other non-research professionals may provide oral or written market commentary or trading strategies to RHB clients that reflect opinions that are contrary to the opinions expressed in this research report.

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