Initiating coverage of JSMR at Buy with TP of IDR6,300
Jasa Marga (JSMR) is a state-owned enterprise (SOE) holding company involved in the toll road business — currently controlling 36 concessions totaling 1,436km. Specifically in Java, — Indonesia’s most populated island (62% of Indonesia’s population) — JSMR controls 60% of the toll road concession. JSMRhas passed its peak investment cycle, and we believe it is now realizing returns on its investments. JSMR acts as a holding company in toll road concessions, and has a strong record in constructing and recycling toll roads. The catalysts for the company are: 1) pricing adjustments (see Fig. 8), 2) traffic growth (Fig. 7),and 3) new development of toll roads that could enhance the productivity of existing toll roads.
Harvesting time — passing the peak of investment cycle
The toll road business involves construction that typically lasts 5-10 years (constructing a complete toll road) before the operator could reap benefits from its investment. We believe JSMR has passed its peak investment cycle, and is now in the ‘harvesting’ phase. We forecast a CAGR EBITDA of 11% and a core profit CAGR of 12% over 2023-26F.
Constructing, recycling and organic toll road growth
JSMR has a strong record of recycling of toll roads — a case in point is the divestment and re-investment of Transjawa’s (JTT, unlisted) three toll roads through its Limited Participation Mutual Funds (RDPT) buyback program, which resulted in a sales gain of IDR4.017tn in FY23, according to the company. Organic toll road traffic growth and pricing adjustments are JSMR's growth drivers, in our view. We believe the ring-road’s development to enhance traffic from the existing main toll road development could also be beneficial in the long term (e.g., the Jakarta ring road which is now among JSMR’s top 4 toll roads). We expect JSMR's traffic to register a CAGR of 1.9% over 2023-26F driven by Greater Jakarta (1.6% CAGR), and ex-Jakarta (2.6% CAGR).
Tipping point for ROE inflection — initiating coverage at Buy
We expect JSMR’s normalised ROAE to improve from 3% in 2020 to 9% by 2026F (see Fig. 1) — driven by increased cash flow generation from its toll roads and declined capex. Our TP of IDR6,300 is based on a P/B target of 1.2x (equivalent to -1SD of its 10-year mean). Risks to our call: 1) delayed divestment of remaining JTT toll roads; 2) slow economic growth resulting in slow traffic growth; and 3) slowing purchasing power.
Company profilePT Jasa Marga Tbk (JSMR) is currently Indonesia's largest toll road operator. Incorporated in 1978, the company was a state-owned enterprise that went public in 2007. At the end of 2023, Jasa Marga operates over 1,200 km of toll roads across the country, representing approximately 60% of the national toll road network. The largest revenue sources for the company are Toll Road Operation revenues at 85%, followed by Construction Services at 10% and other services at 5% respectively. JSMR has become the vital partner in toll road development and maintenance for Indonesia to further its economic growth and connectivity.
Valuation MethodologyOur TP of IDR 6,300 is based on P/B target of 1.2x (equivalent to -1SD of its 10-year mean).
Risks that may impede the achievement of the target priceDownside risks to our call include 1) delayed divestment of remaining JTT toll roads, 2) slow economic growth resulting in slow traffic growth and 3) slowing purchasing power
ESGPT Jasa Marga Tbk (JSMR) emphasizes its commitment on ESG principles. Environmentally, JSMR has reduced its electricity consumption by 33% and fuel usgae by 9,8%, as well as increased the amount of trees planted by 87% as of 2023. As for the Social aspect, JSMR has increased the average training hours per employee to 32 hours/person, compared to 27 hours/person the previous year. The company also channeled IDR24,4bn of CSR funds to over 329 beneficiaries.
Fig. 1: Normalized ROAE improvement for JSMR
Source: Company data, Verdhana estimates
Fig. 2: Valuation still lagging despite ROE improvement
P/B historically has had a similar trend with ROE, but in recent quarters, P/B has been lagging compared to the ROE incline.Source: Company data, Verdhana research
Fig. 3: JSMR forward P/B band (-1.0SD at 1.2x price to book)
Fig. 8: JSMR toll road breakdown by island → 90% of toll roads are in Java…
Toll road calculation only includes the majority owned by JSMRSource: Company data, Verdhana research
Fig. 9: …leveraging the country's high population density
Source: BPS, Verdhana research
Fig. 10: Java island toll road — most lucrative as it is the most populated island in Indonesia
Source: Company, Verdhana research
As Java is the highest populated island in Indonesia, we believe JSMR would reap the most benefits from Java.
Other than that, the difficult and capex-heavy construction period for the Transjava Toll Road (see Fig. 19) — has largely passed. In our view, the Transjava Toll Road is the backbone of inter-city highway that could revolutionize daily commute.
We believe JSMR will leverage the population and GDP growth of cities to create inner city toll road or ring roads like the one in Jakarta (for example the Camareng toll road is now JSMR's top 4 revenue contributor, according to the company).
Indonesia toll road overview
History of toll road development
The toll road industry of Indonesia has been regarded as the driving force of the infrastructure program of the nation. The Jagorawi Toll Road was the starting point; it was constructed during the 70s and represented the first large-scale nationwide effort. This was after a slow and systematic extension targeted at Java, the most populous and economically crucial island in Indonesia.
Indonesia has improved toll road operations from only 636km in 2005 to currently 2,841km. This further improves the traffic gridlock, specifically in the city of Java, cut down transport expenses, and streamline travel between the country's significant economic hubs.
Over the years, the infrastructure budget of Indonesia has amazingly kept increasing because of the government's determination to enhance connectivity and thereby raise the country's economic growth. The budget, which was IDR79tn in 2008, has grown by many folds (reached IDR400tn in 2023). This significant rise highlights the strategic importance attached to infrastructure development in critical sectors that encompass transport, energy, and public facilities. This continuous increase in infrastructure budget allocation also reflects the government's continued efforts to fill infrastructure gaps and upgrade logistical efficiency, supporting a more wide-scale economic development in the country.
Fig. 11: Indonesia toll road in operation km
Source: BPJT, Verdhana research
Fig. 12: Indonesia historical infra structure budget
Source: MoF, Verdhana research
Fig. 13: Breakdown of toll road players and exposure in km
Toll road calculation includes shared ownershipSource: BPJT, Verdhana research
Toll roads in Indonesia are dominated by a few players, including JSMR, Waskita Toll Road (unlisted)— a subsidiary of Waskita Karya (WSKT IJ, Not rated), Hutama Karya (unlisted), Margautama Nusantara (MUN; unlisted), and Astra Infra (unlisted)— a subsidiary of Astra (ASII IJ, Buy). These companies, working in unison, control dense shares of toll roads. There is the impetus through strategic project wins, funding accessibility, and operational efficiencies that these players can extract.
If a certain toll road is owned by two or more parties, that would also considered as the total toll road exposure for the players above. For instance, in the Semarang-Solo toll road (length 73km), Astra (ASII IJ, Buy) owns 40% and JSMR owns 60% and thus, these two players will be deemed exposed to th entire Semarang-Solo 73km toll road.
Company overview
JSMR established as a government-owned company in 1978, it is thus the initial and the first build-operate-transfer toll road corporation in Indonesia. As a pioneering SOE in toll road development in Indonesia, JSMR has played a vital role in building and then managing the country's toll road industry.
Fig. 14: JSMR holding structure
Source: Company data, Verdhana research
Fig. 15: JSMR's ownership
Source: Company data, Verdhana research
We believe JSMR is in the early phase of payback period and thus should start seeing rising EBITDA
The business model of a toll road concession is characterized by cash-flow and EBITDA running through the four main stages of a life cycle of a project: Construction, Negative, Payback, and Mature. Toll road concessions start from the Construction period. Capital investment for infrastructure development is huge in the early stages with no income at the start of the project. Next is the Negative period, when negative cash flow is incurred due to the initial expenses of operation and interest on debt and repayment of principal, with revenue still increasing on the back of organic traffic growth.
And as traffic grows, revenue begins to generate, and the project moves to the next stage, the Payback period, during which income generated starts to cover costs and capital recovery beckons. The last stage is the Mature period when the road has stable traffic or great profitability and the toll road generates strong EBITDA and forms the basis of the financial turnaround of the operator. Managing cash flow properly through these stages is critical for the long-term viability and success of toll road operators.
Fig. 16: Toll road concession business model
Source: Company data, Verdhana research
Key projects: Building a national network
Between 1980s and 1990s, JSMR built a substantial network of toll roads covering long-distance routes allocated mainly to Java, Indonesia's economic heart. Projects undertook during the period included the Jakarta-Cikampek Toll Road and the Jakarta Outer Ring Road, and the company also deepened efforts to improve Java’s internal connectivity, specifically between Jakarta and the industrial zones of West Java, with an aim of easing congestion in the capital. In the 2000s, JSMR realized that the toll roads developed had to support economic activities that were predominant in other parts of Indonesia. This expansion included the completion of the Surabaya-Gempol Toll Road in 2006 as part of the broader Trans-Java network, and it further extended into Sumatra, Kalimantan, and Bali to facilitate regional development and economic integration.
Over the past 20 years, JSMR has dramatically grown its network, from 557 km in 2005 to 1,436 km in 2024 (see Fig. 17), driven by a continuous pipeline of strategic projects across Java and beyond, solidifying its market leadership and central role in Indonesia's infrastructure development and regional connectivity.
Fig. 17: JSMR toll road under operations growth
Source: Company data, Verdhana estimates
Accelerating Connectivity: 450 km of New Toll Roads by 2026
JSMR targets the completion of five more toll road projects in 2026, which will add approximately 450 kilometers to its grid. These include the strategic parts of Jakarta-Cikampek II Selatan, Jogja-Bawen, and Probolinggo-Banyuwangi, all targeting to improve connectivity across Java. JSMR, adopting a strategic approach to build and operate toll roads mainly in Java, has improved the overall traffic flow and expanded on the existing portfolio. Investment capability could be matched with financially careful, phased execution of projects to ensure financial stability in the expansion of toll roads.
Fig. 18: JSMR New Projects to be completed by 2026
Source: Company data, Verdhana research
Strategic capex management for sustainable growth
The capex of JSMR has shown a clear downtrend over the past few years. From the peak of IDR28.8tn in 2018, the company's capex steadily declined to IDR6.7tn in 2020, reflecting completions of numerous large projects completion and most importantly, a strategic turn in the direction of more effective resource utilization.
We believe from 2024F onwards, JSMR’s capex will remain within the range of IDR8.2-9.1tn per every year, indicating the company's investment ability for infrastructure strategic projects while still considering expenses optimization.
Fig. 19: JSMR capex — declining rapidly
Source: Company data, Verdhana estimates
Financials and valuation
JSMR's revenue has been increasing steadily through strategic expansion and operational success at managing Indonesia's toll roads. The company has posted increased revenue each fiscal year from 2004 to 2023, therefore exemplifying this aspect of business model resilience and the company’s toll road asset management capability.
Our forecasts for the period 2023-26 are positive and show a compound annual growth rate of 11%, where the revenues by 2026 are forecasted to reach near IDR19tn, propelled by rising traffic volumes, operationalization of new toll roads, and strategic adjustments in the toll rates. We believe all these should further entrench its market-leading position that JSMR holds in the country's lucrative space and continue its overall contribution toward Indonesia’s infrastructure development.
Fig. 20: Toll road revenue could reach IDR19tn by 2026F
Source: Company data, Verdhana estimates
Volume growth in toll roads from JSMR has been steady over the years, attributable to its successful toll road expansion and management in Indonesia.
JSMR's traffic volume has been increasing continuously from approximately 725mn vehicles in 2004 to more than 1.3bn vehicles in 2024, based on our estimates. This clearly reflects the recovery from the trough in 2020 as a result of the pandemic and the strong rebound of traffic in subsequent years.
The company's traffic volume is still rising, and we expect 1.373bn vehicle traffic volume by 2026F, further cementing the position of JSMR as a key player in Indonesia’s transportation infrastructure.
Fig. 21: Toll road volume
Source: Company data, Verdhana estimates
The average toll price per kilometer for JSMR’s toll roads is growing. This shows strategic changes in price levels. Its toll road ASP registered stable growth from 2004 to 2024, when it reached IDR12,659 per km. We project this to grow further to IDR13,674 per km in 2026F. Growing traffic volume and rising ASP will continue to be the company's key growth drivers. A strategic tariff increase is only possible when the user base continues to grow, and we are positive on JSMR given its strong market position and operational efficiency in running Indonesia's toll road network.
Fig. 22: Toll road ASP
Source: Company data, Verdhana estimates
Operational efficiency: Strategic cost allocation
Depreciation and amortization drove operational expenses of JSMR to account for 32% of total cost in FY23, which reflects the significant investment JSMR has made in toll road infrastructure. Salaries and allowances amounted to 14%, while the cost of goods sold amounted to 13% of total cost. The other major costs were provision overlay and facilities/toll road maintenance, accounting for 11% and 10%, respectively, in FY23. This shows that JSMR spares no expense in ensuring that its gigantic network of toll roads stays in good condition. Other expenses accounted for another 5%, again suggesting JSMR puts continues to prioritize operational efficiency and infrastructure sustainability.
Fig. 23: Revenue and operational breakdown (FY23)
Source: Company data, Verdhana research
Strategic Tariff Leverage Across the Network
A breakdown of JSMR's tariff per km reveals that there is a huge difference between the top four toll roads—the Jagorawi, Jakarta-Cikampek, Jakarta-Tangerang, and Camareng (part of Jakarta Ring Road)—and the rest of its wider network. Excluding the top four, the rest of the network has seen a 2004-24F CAGR of 12% (see Fig. 24), meaning its price has spiraled at a faster rate of 12%. Adjusting the tariffs upward, it can maximize revenue by aligning Jagorawi, Jakarta-Cikampek, and Jakarta-Tangerang specifically with a broader network on the top end of the spectrum.
Fig. 24: Breakdown JSMR tariff/km
Source: Company data, Verdhana estimates
Sustained growth: expect strong EBITDA and profit margins ahead
JSMR's EBITDA is resilient due to its steady topline growth and stringent cost control, supporting its generation of substantial cash flows, and we expect the EBITDA (excluding Construction) margin to remain strong at the 63-65% level. We forecast an EBITDA CAGR of 11% in 2023-26F, and expect it to reach IDR13.4tn by 2026F, JSMR has good financial prospects. Moreover, we expect core profit to record a 12% CAGR during the same period, which once again reflects the operational effectiveness of the firm and its potential to generate high returns.
Fig. 25: JSMR’s profit and EBITDA
EBITDA margin is based on revenues excluding ConstructionSource: Company data, Verdhana estimates
Capex investments backed by strong cash flow
Cash flows from operations have been very strong and consistent due to the steady increase in EBITDA. It means JSMR is able to gather financial capacities to continue its huge capital expenditure program. The company's capex peaked at IDR29tn in 2018 and reduced gradually, reflecting the the completion of major projects. We estimate it to stabilize between IDR8.2-9.1tn annually over 2023-2026F (see Fig. 19). In 1H24, capex stood at IDR3,857bn mainly for ongoing toll-road projects. Our estimated capex of IDR9.1tn and IDR9.0tn for FY24F and FY25F, respectively, reflects JSMR's consistent pursuit of strategic infrastructure expansion while ensuring the sustainability of its financial condition. The idea is that the proposed capital expenditures over this period will be financed from operating cash flows and up to around IDR3tn of debt financing per annum.
JSMR's prudent gearing strategy
JSMR has managed its net gearing ratio carefully over the years, underpinning the strategic moves towards achieving balance in debt and equity by the company. It peaked in 2020 to above 3x on the back of huge investments made for toll road expansions, but since then, it has stabilized to around 1.3-1.4x level from 2023 onwards. This level of gearing indicates that while the company still uses debt to finance growth, it is very much within the safe limit of 5x to ensure financial stability.
Fig. 26: JSMR’s net gearing ratio
Source: Company data, Verdhana estimates
Assessing the interest expense outlook of JSMR in 2025F
In this section, we aim to assess the interest expense outlook of JSMR. We think there are three main events that could impact the interest expense (excluding interest income) of JSMR.
Deleveraging from JTT divestment: We estimate JSMR will receive net proceeds (after tax) from the JTT divestment of about IDR14tn — and we believe the entire proceeds will be used to pay some debt. We estimate this could save about IDR802bn of interest expense in 2025F.
Additional interest expense from the commencement of a new operating toll road: In the next 15 months, we estimate there'll be three toll roads that will start operating in Java (only the first phase), namely Jogja-Solo, Probolinggo-Banyuwangi, and Jakarta Cikampek South. As such, the interest expense from the loans of these segments will be booked to JSMR IJ financial statements, in our view. We estimate about IDR749bn additional interest expense in 2025F for these three companies.
Potential upward repricing of JSMR interest rate: JSMR has benefited from a special ratesince COVID-19. According to the company, the blended cost of debt is on the lower side at 6.7% as of Jul-24. We believe this will normalize and thus the company may potentially receive an upward repricing of the interest rate despite a rate cut. We estimate this should add another IDR194bn of additional interest expense in 2025F.
As such, in totality, we estimate JSMR's interest expense to still grow by IDR247bn in 2025F, despite a potential rate cut from the central bank (see here where our economist expects three rate cuts from Bank Indonesia in 2025F).
Fig. 27: JSMR IJ interest expense and the delta in 2025F
Source: Nomura estimates
Valuation
Fig. 28: JSMR's valuation
Source: Company data, Verdhana estimates
We value JSMR using price-to-book methodology. At our TP of IDR6,300, we estimate JSMR's book value to reach IDR37tn in 2024F and increase to IDR39.8tn in 2025F. This translates into BVPS of IDR5,132 in 2024F and IDR5,484 in 2025F. Our application of a target P/B ratio of 1.2x — that is pegged at 1 standard deviation under the 10-year historical P/B mean — reflects our conservative stance and recognition of JSMR's growth potential. This valuation methodology underlines our confidence in the company's resilience and its potential to reach our TP, even as the volatile market environment continues.
Risks
Downside risks include:
Delays in the divestment of JTT: Through divestments, JSMR is expected to earn liquidity surplus capital and thereby, reduce both its company debt and financing costs. However, without the resource divestment, its objectives could be delayed, and worsen the company’s overall financial flexibility.
Slow economic growth: JSMR’s revenue is mainly driven from traffic on toll roads. In a situation of slow economic growth, leading businesses cut back on operations and consumers on purchasing. This will hurt JSMR’s take from toll revenues, as well as its overall financial performance, leading to a slowdown in its planned expansions and infrastructure improvements.
Purchasing power slowing down: The economic wellbeing of Indonesia as a whole, along with its purchasing power, has a strong bearing on the way people use the toll roads. As purchasing power decreases, fewer people may use the toll roads, as they cut down on non-essential things. This will directly impact the toll collections that JSMR receives. This, in turn, will also slow down the growth of other industries, further affecting the demand for toll road use.
Fig. 29: Peers comparison
Note: Bloomberg Finance L.P. consensus estimates for Not rated (NR) stocks; Pricing as of 10 September 2024. JSMR ROE uses Normalised ROE (refer to Fig. 1) Source: Bloomberg Finance L.P., Verdhana estimates
Mr. Syukur was appointed President Director in 2020. Prior to this, his previous positions among others include Director of Operations of the Company and President Director of PT Marga Lingkar Jakarta.
Pramitha Wulanjani
Director of Finance and Risk Management
She was appointed Director of Finance and Risk Management in 2023. Joining JSMR in 2009, her previous positions among others include Director of Finance of PT Jasamarga Transjawa Tol and Director of Finance of PT Jasamarga Tollroad Operator.
Reza Febriano
Director of Business
Mr. Febriano was appointed Director of Business in 2021. His previous positions among others include Jasamarga Transjawa Tollroad Regional Division Head and Jasamarga Metropolitan Tollroad Regional Division Head.
M. Agus Setiawan
Director of Business Development
Mr. Setiawan was appointed Director of Business Development in 2021. Joining JSMR in 1996, his previous positions among others include Corporate Secretary of the Company and President Director of PT Jasamarga Pandaan Malang.
Bagus Cahya Arinta B.
Director of Human Capital & Transformation
He was appointed Director of Human Capital & Transformation in 2021, Joining the Company in 1986, his previous positions among others include Regional Jasamarga Metropolitan Tollroad Division Head and Regional Jasamarga Transjawa Tollroad Division Head.
Fitri Wiyanti
Director of Operations
Mrs. Wiyanti was appointed Director of Operation in 2020. Joining JSMR in 1998, her previous positions among others include Operation and Maintenance Management Group Head of the Company and GM Jagorawi, Operation Management Division.
Board of Commissioners
Name
Position
Profile Description
Mohammad Zainal Fatah
President Commissioner
He was appointed President Commissioner in 2023. His previous positions among others include Secretary General Ministry of Public Works and Public Housing, Acting Head of Regional Infrastructure Development Body and Ministry Expert Staff for Economy and Investment.
M. Roskanedi
Commissioner
He was appointed Commissioner in 2021. His previous positions among others include Secretary of Junior Attorney General for Intelligence, the Attorney General of the Republic of Indonesia and Head of Provincial Prosecutor's Office of North Sulawesi.
Raja Erizman
Commissioner
Mr. Erizman was appointed Commissioner in 2021. His previous positions among others include Primary Policy Analyst, Education and Training Institute of Indonesian National Police and Head of Communication and Information Technology Division of Indonesian National Police.
Chandra Wijaya
Independent Commissioner
Mr. Wijaya was appointed Independent Commissioner in 2023. His previous positions among others include Dean of Faculty of Administrative Science, University of Indonesia, Head of Research Cluster, and Deputy for Youth Empowerment, Ministry of Youth Affairs and Sports.
Seppalga Ahmad
Independent Commissioner
Mr. Ahmad was appointed Independent Commissioner in 2023. His previous positions among others include Independent Commissioner of PT Pelindo Solusi Logistik, Member of DKI Jakarta Regional People's Representative Council, and Director of PT Pasopati Indo Risk.
Marsetio
Independent Commissioner
He was appointed Independent Commissioner in 2023. His previous positions among others include Chief of Staff of the Indonesian Navy.
Abdul Rachman
Independent Commissioner
Mr. Rachman was appointed Independent Commissioner in 2023. His previous positions among others include Director of Special Asset Management of BMRI, Director of Institutional Banking of BMRI and Director of Consumer Banking of BMRI.
Source: Company data, Verdhana research
INVESTMENT RATINGS A rating of ‘Buy’, indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of ‘Neutral’, indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of ‘Reduce’, indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of ‘Suspended’, indicates that the rating, target price, and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies that are labelled as ‘Not Rated’ or ‘No Rating’ are not in regular research coverage. Benchmark is Indonesia Composite Index (‘IDX Composite’). A ‘Target Price’, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part of the analyst’s estimates for the company’s earnings, and may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market in general.
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