Jasa Marga - July 2014 traffic volume: Seasonally low

Traffic was low in July 2014 due to the Lebaran holidays in the last week of the month. Overall, total traffic volume was down 7.1%m-m to 104mn vehicles in July, reflecting slower business activities in Greater Jakarta as the main traffic contributor. As a result, the daily average traffic volume was 10.1%m-m lower at 3.4mn vehicles in July. On a cumulative basis, however, the total traffic volume in 7M14 was still 2.7%y-y higher at 743mn vehicles with daily average traffic volume reaching 3.5mn vehicles, up 2.7%y-y thanks to the operation of some new sections in 2014 and the high growth of the out-of-Greater Jakarta sections. Going forward, we maintain our volume growth target of 6.0% this year, driven by stronger expected traffic volume in 2H14 from the operation of the new sections. BUY maintained at Rp7,600. 

Lower traffic on almost all sections
JSMR experienced negative monthly performance in July 2014 on almost all sections. Only one section posted positive growth (Palimanan-Kanci: +40%m-m in July 2014) as this section served as an access road to Central Java during the Lebaran holidays. On a yearly basis, total traffic volume slipped 0.8% in July 2014 as last year’s Lebaran week fell in the first week of August. All in all, we believe that the July 2014 traffic volume is in line with the Lebaran seasonality. This phenomenon of lower traffic will be short-lived and once business activities are back to normal in August, traffic will also normalize.

New sections will boost the traffic volume in the following months
With the completion of the last 2km missing link in the JORR W2N section in the last week of July 2014, the JORR network is now fully connected. Hence, we can expect better accessibility from Greater Jakarta sections which should help to ease the traffic congestion on those sections. This will not only improve the traffic volume on the JORR section, but also on other sections which interconnect to JORR. Earlier, this proved to be the case for the new sections in Semarang-Solo (section I-2) and BORR (section 2A), where the daily traffic volume rose above its past 12-month average. Clearly, the opening of new JSMR sections will be the key growth driver given that the mature sections can only grow by 1-5%p.a.

2014 new tariffs: Jakarta-Cikampek, Soedyatmo, and BORR
Toll tariffs will be allowed to be increased on three sections this year, namely: the Jakarta-Cikampek, Soedyatmo, and BORR sections. Indeed, the toll tariff has already been raised on the BORR section, up from Rp3,500 to Rp5,500, following the start of the operation of section 2A in June 2014. For the Soedyatmo section, we expect its toll tariff to be increased by September, with toll tariffs on the Jakarta-Cikampek section to be raised in October, in line with historic norms. Furthermore, we also expect the magnitude of the tariff increases to be within the range of 18-20%, reflecting the cumulative inflation seen in the past two years and the closest rounding figure of Rp500.

Expecting stronger results in 2H14
The macroeconomic picture looks brighter post the elections with high expectations on the new government’s ability to accelerate the development of much-needed infrastructure. Against this backdrop, we believe that JSMR will be one of the main beneficiaries of continued toll road development. And with a solid track record on project execution, this bodes well for future growth. In short, JSMR remains one of our top infrastructure plays. We maintain our BUY call with a Target Price of Rp7,600, implying EV/EBITDA FY15 of 15.7x.

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