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Charting New Routes

Lebaran is approaching, and as it has become a tradition in Indonesia, millions are preparing for the annual pilgrimage to their hometowns to reunite with family and loved ones.


However, beyond being a religious celebration, the phenomenon of mudik Lebaran holds significant economic implications, particularly for regions and industries involved in transportation infrastructure.


The Indonesian government anticipates a substantial increase in the number of travelers during Lebaran 2024 compared to previous years.


Among the entities poised to benefit from this surge in travel is PT Jasa Marga (Persero) Tbk. (JSMR), the leading toll road operator in Indonesia.


According to recent surveys conducted by the Ministry of Transportation (Kemenhub) and various agencies, it is estimated that approximately 71.7% of Indonesia's population, totaling around 193.6 million people, will be on the move during Lebaran 2024. This represents a significant increase of 56.38% compared to the movement during Lebaran 2023, which stood at 123.8 million individuals.


Source: Korlantas Polri 18-23 April 2023


Moreover, several toll roads managed by Jasa Marga have undergone tariff adjustments since 2023, with the most recent adjustments, such as those implemented by PT Jasamarga Transjawa Tol (JTT) and PT Jasamarga Jalanlayang Cikampek (JJC), seeing a 35% increase in tariffs as of March 9, 2024. These adjustments are expected to contribute positively to JSMR's revenue streams.


Source: JSMR, Sucor Sekuritas


The combination of increased toll fees and heightened travel activity presents an intriguing opportunity for investors, as reflected in the positive outlook for JSMR's performance.


Source: Kemenhub


Furthermore, based on other data from the Ministry of Transportation, the regions that are the most significant origins and destinations for the mudik tradition are almost all located on the island of Java.


This also presents an opportunity for JSMR, not only because JSMR operates 47% of the toll road market share, but also because JSMR is currently constructing 5 new toll projects on Java Island.


These projects may not be completed by this upcoming Lebaran, but perhaps they will be ready for the following Lebaran since more than half of the projects are expected to be completed by 2024.


Source: JSMR


We are confident that these new projects will significantly enhance connectivity within JSMR's existing portfolio. Drawing from JSMR's experience in the Trans Java area, improved connectivity has historically resulted in substantial increases in both traffic and revenue for both existing and new toll roads.


Source: JSMR


In terms of financial performance, JSMR reported core earnings of Rp850 billion in the 4Q23, marking a 19% qoq and a staggering 290% yoy increase, primarily driven by traffic volume growth and tariff adjustments.



Our analyst, Niko project robust earnings for JSMR in 2024-25, reaching Rp2.7 trillion and Rp2.8 trillion, respectively.


This growth trajectory is attributed to the full reflection of special tariff adjustments implemented in 2023 and prudent capital expenditure management. Niko also foresee a 10% CAGR in earnings over the next five years.

 

Source: Sucor Sekuritas


With a conservative approach that does not fully account for the potential of the new projects, Niko have raised JSMR's target price to Rp6,600 based on DCF analysis.


This implies forward EV/EBITDA and PE multiples of 10.3x and 17.2x, respectively, assuming a WACC of 9.5% and no terminal value after 2044. Additionally, other upside potentials, such as JTT partial divestment, Federal Reserve interest rate reductions, and re-industrialization trends, further bolster the investment outlook for JSMR.




 


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