Apr 29, 2015 08:08:18
§ 1Q15 net earnings of IDR330bn, +24.7% q-q, -12.4% y-y: Due to rising interest expenses (+25.3% y-y) and higher operating expenses (+15.1% y-y), JSMR booked a disappointing 1Q15 net profit of IDR330bn, up 24.7% q-q, but down 12.4% y-y. This equates to only 86% of our 1Q15 net-profit forecast, while representing 20.4% of our full-year forecast and 19.2% of the consensus figure. § 3M15 traffic volumes grow 4.8% despite Gempol-Pandaan delay: According to data from JSMR, 1Q15 total traffic volumes reached 323mn cars (+4.8% y-y) or 3.6mn cars per day, rising faster than 1Q14 growth of only 3.1% y-y, supported by strong traffic growth from the JORR W2 (+199.9% y-y) and Semarang-Solo (+138.9% y-y) toll-road sections. However, due to erosion on several parts of the toll roads caused by heavy rainfall, JSMR pushed back operation of the 13.6km Gempol-Pandaan toll road to 2Q15. § Higher 1Q15 non-core sales helped by rising fuel prices: On the brighter side, JSMR’s 3M15 other operating revenues rose to IDR119bn (+27.5% y-y), helped by a jump in petroleum sales (1Q15 sales: IDR43.7bn, +217% y-y). Smaller gap between subsidized and unsubsidized fuel price, lowered the impact from the government’s ban on selling unsubsidized fuel in fuel stations alongside toll roads. JSMR also experienced higher sales from toll-road operating services of IDR21bn (+73.5% y-y). Outlook: Higher capex on additional toll-road projects Following negotiations with Thiess Contractors, JSMR successfully acquired two toll road sections in the Trans-Java network, the 90km Solo-Ngawi and 87km Ngawi-Kertosono toll roads. Both toll roads should provide a healthy return for JSMR (expected IRR: above 17%) due to the government’s assistance through viability gap funding (VGF) for constructing part of the toll roads (54.8km). We expect JSMR to commence the Solo-Ngawi toll-road construction in 2H15 due to its more advanced land acquisition process. Thus, we believe JSMR will need to increase its initial 2015 capex estimate of IDR3.85tn to more than IDR4tn. Recommendation: Retain BUY, but lower TP to IDR7,500 Due to persistent high operating expenses and rising interest costs, we lower our 2015-16 net-profit forecasts by 9.7-12.7%. Thus, we lower our 12-month DCF-based TP to IDR7,500 (from IDR8,000), applying a 9.5% WACC. However, we retain our BUY rating on JSMR as we continue to like the company’s defensive nature amid current market uncertainties while its earnings growth potential in 2016 remains attractive in our view. Risks to our call are higher-than-expected capex and lower traffic volumes causing by VAT on toll roads.