Jasa Marga, Only the Begining. CLSA

Jasa Marga is in the best position for infra boom in the future with the
potential implementation of the land bill. The company just signed a MoU
to be the sole operator for Trans Sumatra network, and may also get
three new toll road projects in North-East JORR2. We also highlighted
the power of connectivity which will boost IRRs of projects and our DCFvaluation
to Rp7,900/sh. Resilient traffic, future expansion, better cost
management and strong positioning remain its key success factors

Sole operator for 1,014km Trans Sumatra network
JSMR signed an MoU to be the sole operator for Trans Sumatra network. This
will be a major contributor to its current 545km network with additional
210km in the pipeline. It is still early days to quantify the impact (JSMR will
do feasibility study first), however we view this as a positive catalyst given:
1) Unlike the Trans-Java network, JSMR has the flexibility to stage the
developments, ensuring completeness, connectivity and good return on
investment. 2) A min. 16-17% IRR will be enforced. 3) Local governors are
said to be supportive and cooperative in ensuring the viability of the project.

Potential 3 new toll roads in North-East JORR2
JSMR may also get three new toll road projects in North-East JORR2 as a
replacement for the viability gap fund (VGF) that is supposedly compensated
by the government for acceleration of Semarang-Solo project. These three
sections are quite lucrative given they will connect the industrial area to the
port. These toll roads are badly needed to ease current congestion in the
arterial and inner city toll road; especially with more FDIs coming.

The power of connectivity
Taking three key new sections of JSMR (namely, JORRW2N the “missing link”,
Surabaya-Mojokerto and Gempol-Pandaan), the impact of connectivity to
existing toll roads will translate into significantly higher IRRs for the projects
and a 34% increase for the DCF-valuation to Rp7,900/sh from current
Rp5,900/sh. This is one of the key investment thesis for JSMR.

Best leverage to infra boom
While JSMR does not look particularly cheap vs peers, it offers higher growth
and higher ROE. We also believe the new leader, Adityawarman, has the
ability to continue growing the company. JSMR remains our best pick in the
infra space. Resilient traffic, future expansion, better cost management
through automation and strong positioning remain its key success factors.

Download file : Indonesia JSMR Final