Jasa Marga

Jasa Marga (JSMR) is the oldest and the largest toll road operator in Indonesia, which by the end of 2012, the company held 73% of the entire length of toll roads in Indonesia. As a pioneer in the industry, JSMR also has a long history, ie since the company operates the Jagorawi toll road, the first toll road in Indonesia, in 1978. So when compared with some new private toll road companies, JSMR is practically the most established one. But still, the opportunity for company to grow is wide open. In 2013, JSMR completed the construction of Tanjung Benoa toll road, Bali, not yet including several other toll roads which scheduled to be completed within the next few years. Long-term prospects?

The infrastructure of toll road (or highway), frankly, is one of the most luxurious infrastructure in Indonesia. Residents of Jakarta and its surrounding areas are fortunate because the city is surrounded by several toll roads, but the story is totally different in other cities. In fact, of a number of toll roads operated by JSMR, including those that under construction, only two of them that located outside the Island of Java, namely Belmera toll road (Belawan - Medan - Tanjung Morawa) in North Sumatra, and Tanjung Benoa toll road in Bali. While the other toll road companies, they are also operating in Java, except Bosowa Group that operates the Makassar toll road, South Sulawesi.

However, it also shows that the growth potential of toll road industry in Indonesia is still wide open, because even for Java alone, especially in Jakarta, a number of toll roads was still not enough to overcome the problem of traffic jam, so the Government are continuously build new sections of toll road every year, in which the right of concessions from most of those toll roads are usually given to JSMR. Since 2009 until today, JSMR has obtained at least four new concessions including the Tanjung Benoa toll road, and there will follow eight other concessions in the future, as the toll road sections are still under construction.

The construction of Tanjung Benoa Toll Road, which is now completed

(Note: The entire toll roads in Indonesia are owned by the Indonesian government, but the right for development and management of the toll roads, which is then referred to as the right of concessions, is given to the company, whether it's state-owned companies like Jasa Marga, or private companies. In third quarter of 2013, JSMR had a number of right of concessions worth Rp21 trillion, or about US$ 2.0 billion).

Along with the increasing number of toll road concessions, then automatically the revenue of JSMR was also increased. In 2008, JSMR recorded revenue of Rp3.3 trillion, which increased to Rp9.1 trillion in 2012. During the five-year period, the number of concession rights held by JSMR increased from 13 to 17 concessions, with the total length of toll roads increased from 527 to 555 kilometers, or only increased by 28 kilometers.

Interestingly, if the construction of the eight toll roads is completed in time, ie in the year 2016, then the total length of toll roads managed by JSMR will increase to.. 738 kilometers! Or increased 183 kilometers. So how about the revenue of the company at the year?

Anyway, the long-term prospects of JSMR as we’ve discussed above may not be as attractive as it seems. To build a highway is not an easy work, and the problem is, JSMR is not in the position of decision-maker of the construction of toll roads, but only an implementer of the construction. While the position of decision-maker, it was the domain of government, in this case the Ministry of Public Works, and they are very slow in doing their works. To extend the deadline for the completion of the toll roads, it is also a matter of course. The management of JSMR also admits that the biggest obstacle in their operations is the government itself. For example, for acquisition process of land alone, the Ministry of Public Works could take few years, and I don’t know what the problem is.

Therefore, you may not be able to invest in this JSMR if only because of the prospect of eight new toll road sections belonging to the company. However, JSMR remains attractive for several following points:

1. To build a toll road is hard to be done. But after the construction is finished and the road is ready to operate, then JSMR as the operator would reap stable revenues for a very long period of time. So in this case, even if we take the worst possibility that the construction projects of the new toll roads are failed, but JSMR will still continue to enjoy the revenue from existing toll roads.
2. The fare of toll road always rise from time to time, without the need to worry that the number of toll road users would decreased. And it automatically guarantee that the revenue of JSMR will keep rising from year to year, with the rate of increase that is at least higher than inflation. We could say that JSMR is playing in the sector that is immune to the economic downturns.
3. JSMR is managed by a management team that is competent and trustworthy. At the end of 2012, the company obtained a score of 94.6% for its corporate governance, aka very good. And if I learned the company's financial statements, JSMR is also very similar to Astra International (ASII) and Unilever Indonesia (UNVR), in which their financial statements are simple and 'clean'.
4. Not like other SOEs that spread their business here and there, JSMR is fully focused only on the toll road business alone, and it was certainly nice.
5. To finance the construction of toll roads, JSMR is routinely issuing bonds since 1983, and until now it never had issues of default or such. The bonds itself got AA rated from Pefindo, aka very good.

Like several other state-owned companies such as State Power Company (Perusahaan Listrik Negara/PLN), Pertamina, to Krakatau Steel (KRAS), JSMR actually plays in strategic industry, where the need for public highways is never diminished. If the government is managed to build 1,000 kilometers of toll roads in the future, then the users will still plenty. And fortunately JSMR is competent in the field. As far as I could see, if there is a section of toll road damaged by landslides or something, then the company will always move quickly to fix it. The quality of Indonesian toll road is also very good, at least when compared to common highway that always hollow after flooding when the rainy season arrives, and again the people in the Public Works are very slow in fixing it.

And what about the shares of the company?

In the third quarter of 2013, JSMR’ net income fell 16.2% over the same period of the previous year, but it was because in the previous year, the company gained a non-operating income from the sale of one its toll road sections to Citra Marga Nusaphala (CMNP), so it was not because the net income of the company is actually down. In terms of revenue, it still increased 31.2%, and this increasing should be maintained given that in year of 2014, the company will receive additional revenue from Tanjung Benoa toll road.

Overall, JSMR is interesting because its performance will almost always continue to grow steadily, even if they had no new sections of toll road. In addition, the company also has a big name which, if you live in big cities like Jakarta, Bandung, Surabaya, Denpasar, and Medan, then you would routinely use the toll road, so it is impossible if you did not know the name of the company.

Therefore, JSMR later became one of the blue chip stocks that is valued at a premium price, where the PER of JSMR had always between 15 - 20 times (as an established company, the valuation of JSMR can be seen from its PER). I can not remember if this stock ever recorded PER below 15 times, even though three years ago, the stock was still at the level of Rp3,000 per share.

Unfortunately, at the price of Rp5,000 per share, the PER was still quite high, ie 24.9 times. Actually, I discussed this stock because I was attracted by the fact that JSMR had dropped significantly from its peak of Rp6,900 per share, but even at its current price, you cannot say that JSMR is at fair price let alone undervalue. When compared with some other blue chips like ASII, BBRI, to PGAS, they all recorded PER less than 15 times, but their quality is fundamentals is relatively better. If in the year of 2014, JSMR’ net income jumps because of the additional revenue from Tanjung Benoa toll road, then maybe the current price of the stock is arguably reasonable, but it's just an assumption, is not it? So I prefer to wait for the stock to drop further, let say to 4,300 or 4,000, then we may acquire it. But if you cannot buy the stock at that price, then there are many other stocks that more attractive, both in terms of quality fundamentals and valuation.

But if you are successfully buy the stock at price of Rp4,000 per share, then you can sit back for a very long time. Plus, you probably will be the only person who smiled when Jasa Marga later announced that the toll rate is about to up again, when the other people get angry.

PT Jasa Marga (Persero), Tbk

Rating of Performance in Q3 2013: A

Rating of Stock at 5,000: BBB