Research & Stock Picks

Emiten Report

08 March 2023

By

2M23 Sales

It’s a Divestment Game

JSMR booked IDR 2.2tn gain from the divestment of PT JJC in 4Q22, bringing its FY22 net profit to IDR 2.7tn (+70.1% YoY). In FY23, JSMR seeks to divest 30% from its 99% stake in JTT at ~3x PBV, with a potential gain of up to IDR10.2tn. The proceeds from the divestment will likely be used to support the construction of the toll road projects in the company’s pipeline. JSMR has allocated IDR 8-10tn of Capex for 2023 and plans to increase tariffs on 10 of its operating toll roads. We reiterate our BUY rating with a DCF-based TP of IDR 4,900, implying an FY23F EV/EBITDA of 9.0x  (-1.08SD of its 5-year EV/EBITDA mean).

Positive impact from the divestment of JJC. After booking an IDR 2.2tn gain from the divestment of PT JJC in 4Q22 (total transaction value:  IDR 4.03tn [2.1x PBV]), JSMR’s net profit rose +70.1% YoY, reaching IDR 2.7tn. In FY23, JSMR seeks to divest 30% from its 99% stake in JTT at ~3x PBV, which we believe could yield a positive EPS impact for the company. Using JTT’s current book value of IDR 17tn, the proceeds from the divestment could reach up to IDR15.3tn with a potential gain of up to IDR 10.2tn (using PBV of 3x). We haven’t incorporated the gain from the divestment into our forecast, but it could increase the company’s FY23 net profit to IDR 12.5tn vs. our forecast for FY23 of IDR 2.2tn.

Potential for balance sheet deleveraging. The fund proceeds from the divestment will likely be used to support the construction of the toll road projects in the company’s pipeline; Kediri-Kertosono, Probolinggo-Besuki, dan Yogyakarta – Banyurejo. In FY23, JSMR plans to operate two new toll roads spanning ~35 km, and the company has allocated IDR 8-10tn of Capex, more than FY22 (IDR 4-5tn), although still lower than the 5-year average (2018-2022) (IDR 12.2tn). It is worth noting that in FY22, the company's net gearing ratio stood at 1.7x, and the proceeds could help lower the ratio to 0.9x in FY23.

Toll road tariffs adjustment in 2023. This year, JSMR will increase tariffs on 10 of its operating toll roads; BORR, Ngawi-Kertosono, Sedyanto, Medan Kualanamu Tebing Tinggi, Cinere-Serpong, Semarang-Solo, Semarang-Batang, Gempol-Pasuruan, dan Solo-Ngawi, to keep up with the domestic inflation (4-5%). Hence, we see the company will be able to reach its toll road revenue growth target of 10-15% YoY. Furthermore, mobility seems to have recovered with JSMR’s average daily traffic (LHR) until December 2022 reaching 3.3 million vehicles (15.58% YoY). We also predict that traffic volume will continue to increase in FY23, especially ahead of Eid.

BUY with a TP of IDR 4,900. Considering several factors, including 1) potential gain from JTT divestment which could be used as additional Capex, 2) increase in toll roads tariffs, and 3) recovering mobility, we reiterate our BUY rating on JSMR with a DCF-based TP of IDR 4,900, implying an FY23F EV/EBITDA of 9.0x (-1.08SD of its 5-year EV/EBITDA mean). Risks: 1) delayed divestment plan, 2) lower-than-expected mobility.

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