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JSMR - 3Q20 Update

IT’S UNDER CONTROL SO FAR
JSMR’s 9M20 toll road revenue stood at Rp6.3T (-15% Y/Y) vs. that of 9M19 at Rp7.4T. High interest expense has further taken a toll on JSMR’s financials, bringing net profit to Rp158B (-89.5% Y/Y; 10% of our 2020F estimate). 
 
WEEKLY TOLL REVENUE HAS ALMOST RECOVERED TO PRE-PANDEMIC LEVEL
The reenactment of large-scale social restrictions (PSBB) in September is proven to be a little bit too much for JSMR, as weekly toll road revenue suddenly nosedived by -19%. However, we notice that JSMR is coping well so far, despite prolonged mobility restrictions. In fact, unlike the figures in March to May, toll road revenue quickly recovered to almost pre pandemic level in late October and mid-November, indicating that 4Q20 top line result may be better than expected. In addition, long holiday season by the end of the year, if not axed, may fuel volume transactions. 
 
TARIFF INTEGRATION IS SET TO BE ANNOUNCED, ALBEIT UP IN THE AIR
JSMR is set to announce tariff integration on Jakarta - Cikampek toll road. Long story short, there will be no tariff difference between the original Jakarta – Cikampek and the elevated one; JSMR will not calculate traffic volume separately. However, the tariff and the schedule are still under discussion.
 
DOVISH MONETARY POLICY MEANS SO MUCH
JSMR has been successful in restructuring its subsidiaries’ loans so far, bringing down the WACD to 7.9% in September 2020 from 9.2% in the same month last year. But recent interest rates cut is equivalent to lower pressure from interest expense. As a matter of fact, JSMR did not renegotiate terms for all of its subsidiaries’ loans, hence interest expense rollover, which will be accrued next year, as a result of restructuring scheme may not be as high as initially expected. 
 
BEING CONSERVATIVE NEXT YEAR
As of November, JSMR’s capex realization reached Rp16.3T, while capex allocation next year will be at around Rp9-10T, with maintenance capex standing at around Rp1-2T per year. Given the newly-operated toll roads do not need much maintenance capex, it will not significantly increase for the next five years. In addition, JSMR will be keen on new toll roads, but being more conservative, JSMR will look for toll roads that offer attractive, if not mouthwatering, IRR.
 
VALUATION
We maintain our BUY recommendation with 12-month target price of Rp6,030/share (previous TP: Rp6,030/share), given the fact that JSMR has succeeded in lowering its WACD, which has become an issue for some time. TP reflects 12-month P/E and P/B of 20.5x and 1.7x, respectively. 

Tue December 1Th, 2020

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