Jasa Marga (JSMR IJ): Weakness in traffic volumes, but overall recovery still on track
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Traffic volume saw a further decline to around 15-17% below normal levels in January 2021 versus only 5% below normal levels in December 2020, which seems weaker-than-expected but still too early to reach a conclusion, in our view. However, we see positive developments from the recent tariff hike on several sections by c.5-6%, albeit a delay from last year, with a potential further tariff hike this year given the two-year inflation adjustment. In all, we suggest investors to focus on JSMR’s potential robust EBITDA recovery with a CAGR of 34% y-y over 2020-22E, driven by volume recovery and continued low cost of funds. We reaffirm our BUY rating and TP of IDR6,000/share.
Further weakness in traffic volume in January. Recently, management stated that traffic volumes at JSMR’s major sections in January were seeing a further decline to 15-17% below normal traffic levels for January, vs. only 5% below normal traffic levels in December 2020, aligned with lower Google mobility. We expect this trend to continue throughout 1Q21 due to continued social restriction implementation, thus providing a downside risk to our traffic volume forecasts; however, this is still too early to judge based on only January data. Our sensitivity analysis suggests every 5% decline in blended traffic volume would lead to a c.7% decline in JSMR’s NPAT.
Positive development and counter measures in 2021: 1) tariff risk reduced – JSMR has already implemented a blended 5-6% increase in tariff for its six sections (Jakarta-Cikampek, Padaleunyi, Palikanci, Surabaya-Gempol, and Semarang ABC), with a potential further hike following the two-year inflation hedge plan sometime at year-end; 2) asset divestment plan still on the table – JSMR is open for any opportunities to divest its assets, but prefers to maintain its majority ownership and reasonable pricing, with targeted proceeds from asset sales of around IDR3-4tn in 2021; and 3) targeted capex is around IDR7tn in 2021, lower than in 2020, and potential peak gearing ratio before seeing a declining trend from 2022 onward.
Solid EBITDA recovery still on-track. We suggest investors focus on the potential robust EBITDA recovery (34% CAGR over 2020-22E), after a difficult performance of a likely 29% y-y decline in 2020E, mainly helped by normalized traffic volume and support from newly-commenced toll sections, coupled with major tariff hikes in even-years too. The interest coverage ratio (ICR) is likely to see a decline to 1.3x in 2020E, before recovering to above 1.5x in 2021E, which means it is still within a good position as JSMR should be able to cover operational and interest charges despite the challenging environment.
Reaffirm BUY rating and TP of IDR6,000/share. We remain comfortable with our view of improving volumes and tariff hikes, as well as continued low cost of funds this year, and hence our forecasts too. Furthermore, JSMR’s current valuation of 11.8x EV/EBITDA and 1.4x P/B on 2021E (both at historical mean levels) is attractive, in our view. The stock deserves to trade at a premium compared to the regional toll-road players, in our view, given that JSMR’s market-share leader status, and potential strong EBITDA and ROE recovery this year. In all, we reiterate our BUY call on JSMR with an unchanged DCF-based 12-month TP of IDR6,000/share (using a 9.5% WACC). Downside risks to our call: longer-than-expected social restrictions (PSBB), failure to secure funding for its toll-road developments, and further GDP deterioration.