NOMURA Global Market Research
Indonesia strategy: Outlook 2016 – Time for the big push
Release Date: December 10 2015
Three reasons to accumulate this counter
Action: Three reasons to accumulate this stock; reaffirm Buy
We believe Jasa Marga remains one of the safe-haven companies in Indonesia given its inflation-hedged business, with inelastic demand for its toll sections. We believe market concerns on margin pressure during the current period of expansion and regulatory risks are priced into the share price. We think this stock can be accumulated for three reasons: 1) valuations look good to us at 11.1x FY16F EV/EBITDA, below its five-year mean of 12.4x; 2) clear catalysts are ahead – new toll-road development, and capital injection in 2Q16F, and; 3) toll-road traffic has proved to be resilient despite the weak economy. We reaffirm Buy, and our DCF-based IDR6,500 TP (12% WACC).
Catalysts: Expedited land-clearing process & capital injection in FY16F
Following the 1 Nov 2015 tariff hikes, we think the next share price catalysts are: 1) the expedited land-clearing process, leading to additional toll concessions being acquired and monetised, and 2) potential capital injection in 2Q16F. The government has proposed a capital injection of IDR1.25tn for JSMR from the 2016 state budget. In order not to be diluted, shareholders will need to participate with IDR540bn. Therefore, JSMR will get a fresh capital injection of IDR1.8tn, on our estimates.
Government participation to boost toll-road development
We have witnessed tangible support from the government in order to boost toll-road development. This is crucial as the government aims to improve logistics efficiency to upkeep sustainable growth. Some hard evidence on this front: 1) new toll-road tenders with 70-80% land acquisitions have already been completed; 2) the government’s investment participation in non- financially feasible sections; 3) revoke and retender for undeveloped toll-road concessions, and; 4) the new presidential decree for land acquisition to be retroactive. This makes us confident that the fully connected trans-Java toll-road system will be completed by 2018F.