Jasa Marga (Persero) TBK PT

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1 Rating Price (04-Aug-17, Rp) 5,475 Target price (Rp) (from 8,779) 6,650 Upside/downside (%) 21.5 Mkt cap (Rp/US$ bn) 39,737 / 2.98 Enterprise value (Rp bn) 63,020 Number of shares (mn) 7,258 Free float (%) wk price range (Rp) 5,850-3,910 ADTO-6M (US$ mn) 3.2 Target price is for 12 months. Research Analysts Share price performance 7 August 2017 Asia Pacific/Indonesia Equity Research Highways & Railtracks Jasa Marga (Persero) TBK PT (JSMR.JK / JSMR IJ) OUTPERFORM DECREASE TARGET PRICE Ari Jahja ariyanto.jahja@credit-suisse.com The price relative chart measures performance against the JSX COMPOSITE INDEX which closed at 5, on 04/08/17. On 04/08/17 the spot exchange rate was Rp13,320/US$1 Performance 1M 3M 12M Absolute (%) Relative (%) On the right track! Leading toll road operator with multiple catalysts. Jasa Marga (JSMR) is entering a growth phase, in our view, while the company's rising debt seems manageable amid its investment cycle. On the macro front, improvement in land acquisition should result in record completions in the next few years. Moreover, management has committed to timely project completions, along with better cost efficiencies and financing options. JSMR appears on track to finish ~200 km this year (593 km in operation now). We forecast revenue/ebitda CAGR in the mid-teens, although EPS could decline temporarily in 2019 on interest expenses. Execution progress could drive incremental upside. Investment positives: (1) completion momentum could lead to toll road revenue doubling by 2021, (2) accelerating EBITDA growth, supported by doubledigit tariff hikes and margin expansion on opex efficiencies, and (3) improving financing options. Additional stake sale at decent valuations could provide upside to consensus net income, in our view. Foreign ownership in JSMR is also relatively low, implying room for appreciation. Key differentiation points. We bake in margin improvement on the back of operating efficiencies and benchmarking to emerging market peers, which result in higher-than-consensus EBITDA over E. Furthermore, our detailed modeling through 2065 underscores its long-term growth potential. Gearing level might peak at ~2.8x in 2018E after new toll roads are completed, but still well below the 5.0x covenant. Beyond new launches, the other catalysts include: Jagorawi toll road securitisation if successfully executed, it could unlock a first-of-its-kind incremental financing option; project bonds in operated subsidiaries, rupiah-denominated global bonds; tariff increases for most toll roads in 4Q17; and Trans Java JV updates. Valuation. We introduce our new estimates through 2019, and reduce our DCF-based TP to Rp6,650 (from Rp8,779), assuming WACC of 9.5% and zero terminal value, and reflecting 9.7x 2021E EV/EBITDA. The stock trades at a reasonable 2.4x 12-month forward P/B (vs the historical average of 3.3x), and forward EV/EBITDA of ~13x, in line with its historical average. Its Rp70 bn EV also implies below-par replacement cost of its operated toll roads. Risks: lower-than-expected traffic volumes, land acquisition delays, financing bottlenecks, rising exposure to lower IRR projects, and unfavorable government policy. Financial and valuation metrics Year 12/16A 12/17E 12/18E 12/19E Revenue (Rp bn) 8, , , ,952.5 EBITDA (Rp bn) 5, , , ,139.5 EBIT (Rp bn) 4, , , ,614.3 Net profit (Rp bn) 1, , , ,189.8 EPS (CS adj.) (Rp) Change from previous EPS (%) n.a. 1.4 (13.7) - Consensus EPS (Rp) n.a EPS growth (%) (5.1) P/E (x) Dividend yield (%) EV/EBITDA (x) P/B (x) ROE (%) Net debt/equity (%) Source: Company data, Thomson Reuters, Credit Suisse estimates DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

2 km 7 August 2017 Focus charts and table Figure 1: Length of JSMR s operating toll roads; potential record completions ,278 1,278 Figure 2: We think gearing ratio and interest cover should be manageable despite high capex cycle , DER covenant: 5.0x ICR covenant: 1.25x E 2018E 2019E 2020E E2018E2019E2020E Debt to equity ratio Interest coverage ratio Note: Certain years are intentionally omitted due to minimum changes. Source: Company data Figure 3: Busy catalysts newsflow could provide downside support; securitised financing next Figure 4: Expect accelerating growth, supported by new completions and operating efficiencies 64% 25% July 2017 Completion: Gempol- Pasuruan (14km) Aug 2017 Securitized revenue launch Completion: Bawen- Salatiga (17.5km) Sept 2017 Completion: Medan- Kualanamu- Tebing Tinggi (41.69km) Sepanjang- Krian (15.5km) Nov 2017 Completion: Solo-Ngawi (45.25km) Dec 2017 Completion: Ngawi-Saradan (25km) Solo-Ngawi (45km) 4Q 2017 Tariff hikes for relevant sections 62% 60% 58% 56% 54% 52% 50% 20% 15% 10% 5% 0% E 2018E 2019E 2020E EBITDA margin Revenue growth (ex construction) EBITDA growth Figure 5: Potential EBITDA margin expansion on operating efficiencies and e-toll penetration CS vs. Consensus (Rp bn) 2017E 2018E 2019E Revenue (CS) 10,191 11,765 13,952 Revenue (Consensus) 9,677 11,376 13,278 % difference 5% 3% 5% EBITDA (CS) 5,914 6,812 8,140 EBITDA (Consensus) 5,443 6,397 7,420 % difference 9% 6% 10% Net income (CS) 2,267 2,307 2,190 Net income (Consensus) 1,981 2,112 2,211 % difference 14% 9% -1% EBITDA margin (CS) 58% 58% 58% EBITDA margin (Consensus) 56% 56% 56% Net income margin (CS) 22% 20% 16% Net income margin (Consensus) 20% 19% 17% Figure 6:...and the stock still trades at a reasonable P/B and EV/EBITDA multiples Book value (Rp bn) P/B D/E Description Waskita Toll Road stake sale 3, /30 Mostly toll roads under development Cikampek-Palimanan 2, /30 Launched in 2015 Semarang-Solo /30 First section launched in 2015 Average 2.6 JSMR * 16, /27 * Forward P/B value as of 31 July D/E based on our FY17 assumption 21.0x 19.0x 17.0x 15.0x 13.0x 11.0x 9.0x 7.0x 5.0x STDEV+1 = 15.8x Average = 13.0x Current = 13.0x STDEV-1 = 10.2x WTR 22,565 30% EQ 7,898 LET GO Implied 2021 EV/EBITDA 2, x P/B 1.47 EV/EBITDA Average STDEV-1 STDEV+1 Jasa Marga (Persero) TBK PT (JSMR.JK / JSMR IJ) 2

3 This year JSMR is poised to record its highest-ever toll road completions, supported by an improved regulatory backdrop We now forecast midteens revenue and EBITDA CAGR over on new completions and operating efficiencies Emerging financing schemes, such as securitisation of mature toll road revenues, could help fund pipeline development. We anticipate a manageable debt profile On the right track! Toll roads completion momentum In FY17, we believe JSMR's top-line growth should reach 15-16%, driven by both toll road revenue (probably low teens) and "other businesses" (11% of total revenue in FY16), led by toll road operation services and maintenance services. Meanwhile, management is targeting flattish transaction volume growth amid changes in operating system and the integration system of transactions. JSMR's 2017 targeted completion represents ~60% of total estimated by the Ministry of Public Works and Housing. On the macro front, an improved land acquisition pace has been a crucial progress, which is supported by the pre-financing scheme under the State Asset Management Agency (LMAN). As a reminder, President Jokowi has officially targeted to launch at least 1,060 km of new toll roads through 2019 this could get exceeded. In order to expedite the land acquisition for key toll roads and national strategic projects, the government had allocated Rp16-20 tn of budget in Overall, JSMR is expecting to operate 1,260 km of toll roads by FY19 (vs ~600 km currently), while holding up to 2,000 km of concession rights (vs 1,260 km currently). Also, importantly, discussions with management indicated confidence in prospects of double-digit tariff hikes for most of its toll roads being approved in 4Q17; that could help offset the uptick in interest expense as many new toll roads enter operations. Unlike in the past, the company will likely be strengthening its non-core subsidiaries such as property. Accelerating growth potential We baked in margin improvement on the back of operating efficiencies and benchmarking to emerging market peers, which resulted in higher-than-consensus EBITDA over Moreover, our detailed modeling through 2065 underscores long-term growth potential. Management plans to manage expenses, so they ramp up slower than revenue. All toll road transactions are expected to be cashless starting October 2017, in accordance with Bank of Indonesia's new regulation. Rising e-toll penetration should enhance traffic flow and support operating margins. Even a 50% achievement rate (from just 24% and 15% of total transaction volumes in FY16 and FY15, respectively) could be considered as a positive, in our view. Nonetheless, JSMR has projected a steady headcount in the next few years and plans to implement a stricter pension age limit for toll-gate employees. Improving financing options JSMR aims to double its asset base to Rp112 tn by 2019 from Rp53 tn as of year-end To achieve that, the company plans to spend ~ Rp20 tn of capex this year. However, management anticipates its D/E ratio to peak at 2.95x, well below the 5x covenant limit. Moreover, its interest coverage ratio forecast of 1.29x by 2019 is slightly above the covenant minimum of 1.25x. Additional turnkey projects seem plausible on the back of Contractor Pre Financing (CPF), where construction cost to the SOE contractors are paid only after the project is finished. JSMR's Jagorawi toll road securitised revenue scheme (Kontrak Investasi Kolektif Efek Beragun Aset or KIK-EBA) could be launched in August, with an estimated Rp2 tn in proceeds. It could have a ~9% interest rate and a maximum duration of five years from the issue date. This could unlock a Rp40 tn potential securitisation pipeline. Select stake sales remain part of its near-term strategy to manage cash flows. Uptick in transactions (WTR, Astratel) at decent valuations could bode well for JSMR, as it trades at a 2.4x forward P/B. JSMR's next step could be to sell its entire 19.1% stake in the Kebon Jeruk-Penjaringan Toll road (PT Jakarta Lingkar Barat, Rp181 bn cost). Valuing JSMR: Rp6,650 TP, 22% upside We introduce our new earnings forecasts and a revised target price to Rp6,650, which is derived using DCF through year 2065 with zero terminal value and WACC of 9.5%, implying 14x 2017E EV/EBITDA. The key risks to our view include lower-than-expected traffic and tariff hikes, land acquisition delays, financing bottlenecks, rising involvement in lower IRR projects, and unexpected government intervention. Jasa Marga (Persero) TBK PT (JSMR.JK / JSMR IJ) 3

4 Jasa Marga (Persero) TBK PT (JSMR.JK / JSMR IJ) Price (04 Aug 2017): Rp5,475; Rating: OUTPERFORM; Target Price: (from Rp8,779) Rp6,650; Analyst: Ariyanto Jahja Income Statement (Rp bn) 12/16A 12/17E 12/18E 12/19E Sales revenue 8,832 10,191 11,765 13,952 Cost of goods sold 4,023 4,596 4,986 6,029 EBITDA 5,044 5,914 6,812 8,140 EBIT 4,166 4,858 5,598 6,614 Net interest expense/(inc.) 1,509 2,004 2,583 3,374 Recurring PBT 2,650 3,154 3,315 3,240 Profit after tax 1,803 2,192 2,304 2,252 Reported net profit 1,889 2,267 2,307 2,190 Net profit (Credit Suisse) 1,889 2,267 2,307 2,190 Balance Sheet (Rp bn) 12/16A 12/17E 12/18E 12/19E Cash & cash equivalents 4,125 5,558 4,068 5,870 Current receivables 8,279 14,484 12,042 10,779 Inventories Other current assets Current assets 12,966 20,851 16,816 17,275 Property, plant & equip. 34,703 51,883 67,397 71,790 Investments Intangibles Other non-current assets 5,673 5,427 5,343 5,509 Total assets 53,500 78,319 89,714 94,733 Current liabilities 19,021 21,653 18,241 8,076 Total liabilities 37,161 56,800 65,869 62,645 Shareholders' equity 14,121 15,821 17,448 18,946 Minority interests 2,660 5,262 5,961 12,706 Total liabilities & equity 53,500 78,319 89,714 94,733 Cash Flow (Rp bn) 12/16A 12/17E 12/18E 12/19E EBIT 4,166 4,858 5,598 6,614 Net interest (1,509) (2,004) (2,583) (3,374) Tax paid (847) (962) (1,011) (988) Working capital (3,106) (3,239) 4,641 (8,522) Other cash & non-cash items 1,646 4,008 2,519 8,664 Operating cash flow 349 2,660 9,164 2,394 Capex (10,666) (18,392) (17,280) (6,653) Free cash flow to the firm (10,317) (15,731) (8,116) (4,259) Investing cash flow (8,395) (17,964) (16,947) (6,540) Equity raised Dividends paid (293) (567) (680) (692) Financing cash flow 8,847 16,736 6,292 5,949 Total cash flow 802 1,433 (1,490) 1,803 Adjustments Net change in cash 802 1,433 (1,490) 1,803 Per share 12/16A 12/17E 12/18E 12/19E Shares (wtd avg.) (mn) 7,258 7,258 7,258 7,258 EPS (Credit Suisse) (Rp) DPS (Rp) Operating CFPS (Rp) , Earnings 12/16A 12/17E 12/18E 12/19E Growth (%) Sales revenue EBIT EPS (5.1) Margins (%) EBITDA EBIT Valuation (x) 12/16A 12/17E 12/18E 12/19E P/E P/B Dividend yield (%) EV/sales EV/EBITDA EV/EBIT ROE analysis (%) 12/16A 12/17E 12/18E 12/19E ROE ROIC Credit ratios 12/16A 12/17E 12/18E 12/19E Net debt/equity (%) Net debt/ebitda (x) Source: Company data, Thomson Reuters, Credit Suisse estimates Company Background PT Jasa Marga (Persero) Tbk is a state-owned enterprise primarily engaged in the toll-road management and operation in Indonesia. Blue/Grey Sky Scenario Our Blue Sky Scenario (Rp) (from 7,632) 7,280 Higher-than-expected traffic volume growth, toll road completions, and tariff hikes. Also, lower cost of debt Our Grey Sky Scenario (Rp) (from 5,986) 5,040 GLower-than-expected traffic volume growth, toll road completions, and tariff hikes. Also, higher cost of debt Share price performance The price relative chart measures performance against the JSX COMPOSITE INDEX which closed at 5, on 04-Aug-2017 On 04-Aug-2017 the spot exchange rate was Rp13,320/US$1 Jasa Marga (Persero) TBK PT (JSMR.JK / JSMR IJ) 4

5 Table of contents On the right track! 3 Toll roads completion momentum... 3 Accelerating growth potential... 3 Improving financing options... 3 Valuing JSMR: Rp6,650 TP, 22% upside... 3 Toll roads completion momentum 6 Entering the execution phase... 6 Toll roads have remained one of the infra priorities Please click here for our detailed report on Indonesia infrastructure, and contact us if you'd like a "tracker "on the national strategic projects. We have active coverage on the SOE contractors as well Accelerating growth potential 13 Strengthening non-core subsidiaries Improving financing options 17 Financial summary 19 Valuing JSMR: Rp6,650 TP, 22% upside 22 Jasa Marga: Credit Suisse HOLT view Key investment risks Appendix 27 SOE capex will be a crucial driver of infra development Financial statements 34 Jasa Marga (Persero) TBK PT (JSMR.JK / JSMR IJ)

6 Toll roads completion momentum Entering the execution phase JSMR's management highlighted that its expansion plans are in line with President Jokowi's infra completion targets, with Java being the focus currently. For FY17, its topline growth could reach ~15%, driven by both toll road revenue (probably low teens) and "other businesses" (11% of total revenue in FY16), led by toll road operation services and maintenance services. Meanwhile, management is targeting flattish transaction volume growth. JSMR's 2017 targeted completion represents ~55% of the Ministry of Public Works and Housing's target. Looking ahead to FY18/19, JSMR has guided to 350 km/100 km of completions. On the macro front, an improved pace of land acquisition has been a crucial progress. Overall, JSMR's management expects to operate 1,260 km of toll roads by FY19 (vs 593 km currently), while holding up to 2,000 km of concession rights (vs 1,260 km now). Moreover, assets and toll revenue are expected to reach Rp115 tn and Rp15 tn, respectively, compared with Rp53.5 tn and Rp8.1 tn as of FY16. We view these targets as reasonable. Unlike the past, JSMR will be strengthening its non-core subsidiaries as well. After review by the Toll Road Authority (BPJT), projected completion has risen to 1,851 km. The institution now guides to 380 km of completion this year, followed by 767 km and 528 km in 2018 and 2019, respectively. Our recent discussions with JSMR's CFO indicated confidence in prospects of double-digit tariff hikes for most of its toll roads being approved in 4Q17. This could help offset the uptick in interest expense in FY18 as many new toll roads become operational. As a frame of reference, the average tariff hike in 2015 is 13% and in 2016 is 15%. Initial toll tariff is stipulated in the concession agreement prior to the start of construction. Meanwhile, tariff adjustment is regulated by law, calculated largely based on the consumer price index (CPI) and is modified once every two years. The IRR on equity requirement for its toll road projects is 14-16%, with a minimum threshold of 14%. Traffic volume uptick tends to be slow during the first couple of years. Pertaining to financials, net income usually turns positive on year 4 of operations, since it is affected by depreciation costs and interest expense. EBITDA may turn positive on year 2 of operations. We forecast revenue and EBITDA CAGR in mid-teens over , although earnings may decline in 2019 due to interest expense growth. JSMR is planning to spend up to Rp20 tn this year. However, management anticipates the D/E ratio to peak at 2.95x, well below the covenant limit of 5x. Additionally, the interest coverage ratio by 2019 is forecast to be 1.29x, above the covenant minimum of 1.25x. Figure 7: More than 200 km of new toll roads could come online by year-end Source: Company data Toll road Section Length (km) Surabaya-Mojokerto Sepanjang-Krian 15.5 Semarang-Solo Bawen-Salatiga 17.5 Gempol-Pasuruan 20.5 Ngawi-Kertosono Ngawi-Saradan 25.0 Medan-Kualanamu-Tebing Tinggi Perbarakan-Sei Rampah Solo-Ngawi Total Jasa Marga (Persero) TBK PT (JSMR.JK / JSMR IJ) 6

7 Length of toll road completions (km) 7 August 2017 Figure 8: Select new toll roads sections in JSMR's pipeline rapid land acquisition progress since FY15 100% 90% 80% 70% 72% 84% 85% 95% 60% 50% 40% 30% 36% 44% 33% 52% 41% 55% 32% FY15 FY16 20% 1Q17 10% 0% 0% 0% 0% 0% 0% 0% 1% Figure 9: The government anticipates to complete 380 km of toll roads this year E 2018E 2019E Source: Company data, Detik, Tempo Jasa Marga (Persero) TBK PT (JSMR.JK / JSMR IJ) 7

8 Millions 7 August 2017 Figure 10: JSMR traffic volumes, E 2,000 1,800 1,600 1,400 1,200 1,092 1,200 1,258 1,313 1,374 1,362 1,460 1,548 1,646 1,734 1, E 2018E 2019E 2020E Note: There is a change in volume calculation starting Source: Company data Toll roads are among the success stories of SOE capex upcycle Toll roads have led the adoption of PPPs. Eight of the 17 PPPs in Indonesia are toll roads. They include Manado-Bitung (39 km), Balikpapan-Samarinda (98 km), Medan-Kualanamu- Tebing Tinggi (62 km), and Solo-Ngawi (90 km), and Ngawi-Kertosono (87 km), all of which have been supported by the government's viability gap funding (VGF). We think this is achievable since land acquisition progress has exceeded 90% on the back of the new law ("UU No. 2/2012"). Land acquisition is the government's responsibility, undertaken by the Land National Agency. Price is determined by independent appraiser based on market price. Moreover, the process has been supported by a new scheme that allows concession owners to pay for the costs upfront, prior to being reimbursed by the government. As reported by the Jakarta Post, the Ministry of Finance (MoF) through its State Asset Management Agency ("LMAN"), a public agency responsible for state asset management, had launched a new scheme to fund land acquisition for the national strategic projects. Under a 2016 presidential regulation, LMAN should plan for funding and the utilisation of land banks as well as pay compensation for land acquisition to support the government s infrastructure development programs. The agency was approved in 2015 by the House of Representatives as a public service agency ("BLU") under the MoF's Directorate General of State Assets, which commenced operations in December The government allocated Rp16 tn (US$1.2 bn) and Rp 20 tn in 2016 and 2017 state budgets, respectively. On the positive side, the government has boosted its land acquisition budget by Rp12 tn to Rp32 tn, respectively. The disbursement of pre-financing fund ("dana talangan") to 28 toll road companies reached Rp bn (Rp16 tn in 2016), as of 12 May 2017, according to the Investor Daily. JSMR's capex would exceed Rp20 tn, while Waskita Toll Road's (WTR) capex could reach Rp20 tn. These underscore the crucial role of SOE balance sheets in driving infra development. Speaking of execution, the government is targeting the Trans-Java network to be completed by This year, JSMR has planned to launch at least ~200 km. Moreover, JSMR and WTR have established a Trans-Java joint venture company, called the PT Jasamarga Transjawa Tol. The new company is anticipated to run the Trans-Java toll road services, including road construction, operation, maintenance and any other related businesses. According to the company filing, JSMR had contributed Rp812.5 mn to Jasa Marga (Persero) TBK PT (JSMR.JK / JSMR IJ) 8

9 the JV and owns 65% of the shares. Management believes that the JV would ease the integration of operational management for related toll roads. We think the potential JSMR toll roads that could be spun off include: Jakarta-Cikampek (83 km), Palimanan-Kanci (26 km), Semarang (24.75 km), and Surabaya-Gempol (49 km). Despite this JSMR will still have the Jakarta Inner Ring Road (23.55 km), Jakarta Outer Ring Road (36 km), Jakarta- Bogor-Ciawi (59 km), and Cikampek-Padalarang (58.5 km) under the HoldCo. Figure 11: JSMR's list of pipeline projects; mid-teens IRR profile No. Concession/Section Length (km) IRR 1 Bogor Outer Ring Road (BORR) 11.0 min 16% 2 Semarang-Solo (part of Trans Java) 72.6 min 16% 3 Gempol-Pasuruan (part of Trans Java) 34.2 min 16% 4 JORR 2 (Cengkareng-Kunciran) 14.2 min 16% 5 JORR 2 (Kunciran-Serpong) 11.2 min 16% 6 JORR W2 North (part of JORR) 7.7 min 16% 7 Surabaya-Mojokerto 36.3 min 16% 8 Gempol-Pandaan 13.6 min 16% 9 Nusa Dua-Ngurah Rai-Benoa 10.0 min 16% 10 Medan-Kualanamu-Tebing Tinggi 61.7 min 16% 11 Solo-Ngawi 90.1 min 16% 12 Ngawi-Kertosono 87.0 min 16% 13 Cinere-Serpong 10.1 min 16% 14 Semarang-Batang 75.0 min 14% 15 Balikpapan-Samarinda 99.9 min 14% 16 Manado-Bitung 39.9 min 14% 17 Jakarta-Cikampek Elevated 36.6 min 14% Source: Company data Figure 12: JSMR's list of additional projects; to be obtained via tender, acquisitions, or unsolicited Length (km) Estimated Investment (Rp tn) 1 Probolinggo-Banyuwangi Semarang-Demak Jakarta-Cikampek II Akses Patimban Bandung Utara Toll Road Demak-Tuban-Gresik Tebing Tinggi-Parapat-Kuala Tanjun Cileunyi-Tasikmalaya-Cilacap Cawang-Bandara (Elevated) Kertosono-Kediri-Tulungagung Padalarang-Sukabumi Surabaya Eastern Ring Road (SERR) Gedebage - Majalaya Semanan - Balaraja Total Source: Company data Jasa Marga (Persero) TBK PT (JSMR.JK / JSMR IJ) 9

10 Figure 13: Jasa Marga's extensive toll road network and projects in Java Source: Company data Jasa Marga (Persero) TBK PT (JSMR.JK / JSMR IJ) 10

11 Toll roads have remained one of the infra priorities Please click here for our detailed report on Indonesia infrastructure, and contact us if you'd like a "tracker "on the national strategic projects. We have active coverage on the SOE contractors as well. Figure 14: Infrastructure plans in 2014 vs 2019 Targets 2014 condition 2019 target Connectivity National road condition 94% 100% Logistics cost 23.5% of GDP 19.2% of GDP Public transports market share 23% 32% Bandwidth availability 72% 100% Energy Electrification ratio 81.5% 96.9% Power consumption per capita 843 kwh 1200 kwh Gas distribution pipeline 11,960 km 17,690 km Household gas network 102,000 (SR) 192,000 (SR) Gas station 40 unit 40 unit Oil refineries 0 unit 2 unit Basic infrastructure Access to drinking water 68.5% 100% Access to sanitation 60.5% 100% Slum area 37,407 ha 0 ha Houses backlog 13.5 mn 6.8 mn Water supply Water supply capacity 51.4 M3/second M3/second Per capita storage capacity 62.3 m m3 Reservoir-based irrigation 7,145 mn ha 7,914 mn ha Irrigation network coverage 94% 100% Flood prevention design 5 to 25 years 10 to 100 years Source: Ministry of National Development Planning ("Bappenas") RPJMN Figure 15: Additional infrastructure buildout plan Field Projects Irrigation 30 new dams and 33 water-based power plant (PLTU) Construction of 3 mn ha of irrigation system Rehabilitation of 3mn ha of irrigation system Oil and gas Construction of 2x300th barrel oil refineries Construction of FSRU in five locations: West Java, Central Java, East Java, North Sumatera, and Lampung To increase electrification ratio to 96.6% Broadband Completion of Palapa Ring fibre optic project e-government index to reach 3.4/4.0 Transportation 2,650 km of new roads 1,000 km of new toll roads Hub 24 new seaports Maintenance of 46,770 km of existing roads Construction of 3,258 km of rail track in Sumatera, Java, Sulawesi, and Kalimantan 15 new airports 60 crossing ports Electricity 35,000MW of additional capacity Source: CEIC, Ministry of Finance, Bloomberg Jasa Marga (Persero) TBK PT (JSMR.JK / JSMR IJ) 11

12 Figure 16: Land acquisition progress at JSMR's toll roads pipeline Source: Company data Land acquisition progress FY15 FY16 1Q17 Bogor Outer Ring Road 0% 72% 84% Semarang-Solo Bawen-Salatiga 98% 100% 100% Salatiga-Boyolali 47% 100% 100% Boyolali-Solo 40% 100% 100% Salatiga-Kartasuro % Surabaya-Mojokerto Sepanjang-WRR 90% 100% 100% WRR-Driyorejo 64% 100% 100% Driyorejo-Kriyan 100% 100% 100% Gempol-Pasuruan 98% Gempol-Rembang 99% 99% Rembang-Pasuruan 89% 92% Pasuruan-Grati 28% 34% Medan-Kualanamu-Tebing Tinggi 83% Tj. Morowa-Parbarakan-Kualanamu 92% 99% Parbarakan-Lubuk Pakam 100% 100% Lubuk Pakam-Adolina 98% 98% Adolina-Perbaungan 96% 96% Perbaungan-Teluk Mengkudu 99% 99% Teluk Mengkudu-Sei Rampah 88% 91% Sei Rampah-Tebing Tinggi 0% 36% 44% Solo-Ngawi 92% Section 1-92% 92% Section 2-91% 92% Ngawi-Kertosono 90% Ngawi-Magetan - 92% 98% Magetan-Madiun - 85% 95% Madiun-Saradan - 93% 98% Cinere-Serpong 0% 30% 36% Kunciran-Serpong 0% 71% 76% Cengkareng-Kunciran 0% 23% 26% Jakarta-Cikampek II Elevated 0% 0% 0% Batang-Semarang Batang-Batang Timur 0% 100% 100% Batang Timur-Weleri 0% 94% 94% Weleri-Kendal 0% 46% 48% Kendal-Kaliwungu 0% 33% 52% Kaliwungu-Krapyak 0% 76% 81% Pandaan-Malang Section 1 0% 41% 41% Section 2 0% 60% 88% Section 3 0% 68% 68% Section 4 0% 84% 84% Balikpapan-Samarinda Balikpapan-Samboja 95% 99% Samboja-Muarajawa 96% 99% Muarajawa-Palaran 93% 93% Palaran-Samarinda 0% 41% 55% Sepinggan-Km 13 Balikpapan 62% 68% Manado-Bitung Ring Road Manado-Sukur 93% 93% Sukur-Airmadidi 41% 45% Airmadidi-Bitung 0% 1% 32% Jasa Marga (Persero) TBK PT (JSMR.JK / JSMR IJ) 12

13 Accelerating growth potential We forecast revenue and EBITDA CAGR in mid-teens over JSMR's top-line should improve on the back of new toll road openings through In the longer term, we assume EBITDA margins would expand to the mid-60% from the high 50%s level. Comparison relative to regional toll road peers (Figure 18) also implies room for margin improvement. Additionally, management has planned to manage expenses to ramp up slower than revenue. All toll road transactions are expected to be cashless starting October 2017, according to Bank of Indonesia's new regulation. Rising e-toll penetration should enhance traffic flow and support longer-term margins. Even a 50% rate (from 24% and 15% of total transaction volume in FY16 and FY15, respectively) could be considered as a positive, in our view. Areas of potential cost savings cited by management: labour, maintenance, and reengineering of traffic. JSMR plans to keep its headcount steady in the next few years and implement a stricter pension age limit for toll-gate employees. This is aimed at supporting operating leverage as top-line growth improves. Moreover, the recent Eid discount has catalysed e-toll penetration uptick to ~33% from ~28% as of 1Q17. JSMR reduced its toll fees by 20% from 22 June to 26 June and 30 June to 2 July, which were applied at 15 sections it operates, including Jakarta-Tangerang, Banten, and Purwakarta-Bandung- Cileunyi. Figure 17: Improving EBITDA margins 64% 62% 60% 58% 56% 54% 52% 50% E 2018E 2019E 2020E 25% 20% 15% 10% 5% 0% EBITDA margin Revenue growth (ex construction) EBITDA growth Source: Company data Figure 18: 2017E EBITDA margin comparison analysis vs regional peers 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 81% 70% 69% 66% 65% 62% 59% 58% 57%, RAVE Jasa Marga (Persero) TBK PT (JSMR.JK / JSMR IJ) 13

14 % of operating expense 7 August 2017 Figure 19: Rising e-toll penetration could improve operating leverage; was at ~28% as of 1Q17 Figure 20: Opex breakdown; expect more moderate growth in salaries and allowance line 30% 25% 9,000 25% 20% 8,000 7,000 20% 15% 6,000 5,000 15% 10% 10% 5% 4,000 3,000 2,000 5% 0% Q17 0% 1, E 2018E 2019E 2020E Operating expenses (ex construction) Salaries & allowance Depreciation & Amortization Figure 21: Salaries and allowances accounts for JSMR's largest proportion of costs Tax expense 7% Others 21% Salaries & allowance 29% Cost of sales 11% Overlay 12% D&A 20% Source: Company data Figure 22: Number of JSMR's permanent and contract employees by age group 2,500 2,000 1,500 1, >50 years years years years years old years old Below 25 years Source: Company data Jasa Marga (Persero) TBK PT (JSMR.JK / JSMR IJ) 14

15 Speaking of macro, fluctuating car sales growth appears to have minimal impact on JSMR's traffic volume. However, an increase in car sales may contribute to higher longterm traffic volume. As a frame of reference, car penetration in Indonesia remains generally lower than ASEAN peers. Figure 23: 4W penetration rate in Indonesia is relatively low compared to regional peers ( ) Source: CEIC ( data) Strengthening non-core subsidiaries PT Jasa Marga Properti is preparing for three property projects. The first will be an office at Pessangrahan (South Jakarta), which is located by the Ciledug toll road exit. This Office One project has 1,433 m² at building area of m², comprised six floors. Meanwhile, the two landed house projects are located in East Java, with mid-2017 projected launch. Cumulative investment amount for these projects is Rp72.4 bn. Speaking of possible SOE restructuring, PT Hutama Karya ("HK", non-listed) is expected to be a toll road and construction holding company. The members: PT Jasa Marga Tbk, PT Waskita Karya Tbk, PT Wijaya Karya Tbk, PT Indra Karya, PT Yodya Karya, and Trans Sumatera OperatingCo. According to the Investor Daily, total assets of this holding are forecast to grow from Rp99.2 tn to Rp154 tn in 2016, prior to reaching Rp381.9 tn by While JSMR's role as a developer continues, the company's operation services subsidiary PT Jasa Layanan Operasi (JLO) is poised to obtain new business from PT HK and PT WTR's newly operated toll roads. As a frame of reference, JLO is Jasa Marga's subsidiary entity that focuses on toll road operation services, both toll roads of which rights belongs to JSMR and other business entities. Jasa Marga (Persero) TBK PT (JSMR.JK / JSMR IJ) 15

16 Revenue (Rp bn) 7 August 2017 Figure 24: Rising contribution from new toll roads and other business to JSMR's total revenue ex-construction 14% % % 30% 57% 74% Major toll road New toll road Other revenue Major toll road New toll road Other revenue Figure 25: Increasing contribution of "other business"; +78% YoY growth to Rp905 bn in FY16 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2, % 7.4% 5.9% 4.1% 5.2% 5.4% E 2018E 2019E 2020E 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Toll revenues Other operating revenues % of other revenue Jasa Marga (Persero) TBK PT (JSMR.JK / JSMR IJ) 16

17 Improving financing options Figure 26: Infrastructure investment needed per RPJMN ; electricity, sea connectivity, and roads are among the top three areas of total spending No. Sector State budget Municipal budget SOE Private Total 1 Road Railway Shipping Air transportation Land transportation City transportation Electricity Energy (Oil & gas) IT Water resources Drinking water and waste Residential Total 2, , , ,519.4 Percentage 40.14% 9.88% 19.32% 30.66% Source: Source: Ministry of National Development Planning ("Bappenas") RPJMN JSMR aims to double its asset base to Rp112 tn by 2019 from Rp53 tn by year-end To achieve that, the company plans to undertake up to Rp20 tn of capex this year, which will likely accelerate in Nonetheless, management anticipates the D/E ratio to peak at 2.95x, well below the covenant limit of 5x. Moreover, the interest coverage ratio by 2019 is forecast to be 1.29x, slightly above the covenant minimum of 1.25x. As a frame of reference, debt to equity financing for toll roads is typically 70/30. The weighted average cost of debt for JSMR has declined to 9.39% in FY16 from 10.9% a year earlier, but management is still targeting that to decrease further. JSMR's Jagorawi toll road securitised revenue scheme (Kontrak Investasi Kolektif Efek Beragun Aset or KIK-EBA) will likely be launched in August, with an estimated Rp2 tn proceeds. It could have a ~9% interest rate on the back of possible AAA credit rating by Pefindo and maximum duration of five years from the issue date. The toll road contributed Rp697 bn to revenue in FY16 (~7% of total traffic but ~9% of revenue). Management anticipates revenue stream still recorded in income statement but translating into unearned revenue or non-interest bearing debt, while concession right remains intact. The proceeds could help fund development for the 16 toll roads in JSMR's pipeline. Overall, the effort is hoped to unlock up to Rp40 tn potential proceeds from securitising various toll roads revenues. Moreover, management is assessing creative financing schemes such as global local currency bonds and project bonds. Additional turnkey projects seem plausible through the Contractor Pre Financing (CPF), where construction cost to the SOE contractors is paid only after the project is finished. Select stakes sales will remain part of near-term strategy to manage cash flows JSMR wants to maintain majority ownership on most toll roads, but has been prepared to reduce their stakes. Subsequently, we see possible additional divestitures of minority stakes and reduction of majority stakes in the next couple of years. Uptick in transactions at decent valuations could bode well for JSMR that includes Waskita Toll Road's (WTR) Rp3.5 tn stake sale at 1.5x P/B, Astratel's Cikampek-Palimanan toll road purchase at ~3.2x, and JSMR's own PT TMJ stake sale at ~3.0x as well. Astratel has emerged as a meaningful toll road player with 343 km under the portfolio and target of 500 km by Total proceeds for WTR from PT SMI and PT Taspen are reported to be Rp3.5 tn (combined 26% stake) at 1.5x P/B. This is comprised of 15 toll road sections (750 km), of Jasa Marga (Persero) TBK PT (JSMR.JK / JSMR IJ) 17

18 which only two have begun operations. The state-owned pension fund PT Taspen has injected Rp2 tn (~14% ownership) into WTR, while state-owned infra lender PT Sarana Multi Infrastruktur contributed Rp1.5 tn (~12% ownership). This transaction underscores the availability of alternative funding sources beyond the state budget and infra SOEs' balance sheet. The National Development Planning Ministry ("Bappenas") has designated WTR as one of the pilot projects utilising the non-state budget investment scheme ("PINA"). WSKT plans to open tender to sell several toll roads stakes and 22% of its WTR shares in August. At least 14 investors have stated interest. Management is targeting proceeds reaching Rp7-8 tn. Additionally, ASII/Astratel had purchased an overall 45% stake in Cikampek-Palimanan section (116 km; operational since mid-2015) from both Saratoga and Surya Internusa (SSIA) for Rp2.5 tn at ~3x P/B. JSMR's 15% stake sale at PT Trans Marga Jateng ("TMJ", Semarang-Solo toll road, Rp6.1 tn total assets) to Astratel at Rp780 bn, where the company previously owned 73.91%. This makes sense as Astratel already had a 25% stake in this concession (link). The valuation came in higher than management's expectations. JSMR's next step could be to sell its entire 19.1% stake in Kebon Jeruk- Penjaringan Toll road (PT Jakarta Lingkar Barat, Rp181bn at cost). Looking ahead to FY18, JSMR is considering to divest Gempol-Pasuruan (34.15 km; part of Trans Java; will be operational this year) and Gempol-Pandaan (13.61 km; started operations in June 2015), in which it owns 98.09% and 90.71%, respectively. We see Astratel Nusantara is still in the expansionary mode on toll roads. The company currently runs km, with the goal of operating 500 km by Management has not decided whether or not it will acquire the Waskita Toll Road. Revenue is anticipated to grow 50% YoY in FY17. Of the six toll roads in its portfolio, only two are fully operational. Figure 27: Summary of potential stake sale proceeds for JSMR; based on hypothetical analysis Toll road Status Classification Total assets (Rp bn) Financial asset at cost (Rp bn) JSMR's ownership (%) Stake sold (%) Status Remaining stake A B C = A - B P/B Market value Book value (x) (Rp bn) (Rp bn) PT Trans Marga Jateng (TMJ) Operational Consolidated subsidiaries 6, % 15.0% Completed 59% PT Transmarga Jatim Pasuruan (TJP) Under development Consolidated subsidiaries 1, % 40.0% CS estimate 59% PT Jasamarga Pandaan Tol (JPT) Operational Consolidated subsidiaries 1, % 33.0% CS estimate 59% PT Jakarta Lingkar Baratsatu (JLB) Operational Other financial assets % 19.1% CS estimate 0% PT Marga Mandala Sakti (MMS) Operational Other financial assets % 1.94% CS estimate 0% PT Citra Margatama Surabaya (CMS) Operational Other financial assets % 5.26% CS estimate 0% PT Bosowa Marga Nusantara (BMN) Operational Other financial assets % 2.47% CS estimate 0% Total 2, ,239 Gain (Rp bn) Note: Assumes 70/30 debt to equity ratio for toll roads. Figure 28: Implied multiple from WTR's targeted proceeds Toll road Length (km) WTR's Ownership (%) Carrying value (Rp bn) Equity portion (Rp bn) WTR's equity portion (Rp bn) Pejagan-Pemalang % 4,231 1,269 1,269 Pejagan-Kanci % 3,344 1, Pasuruan-Probolinggo % Pemalang-Batang % 1, Total ,738 2,921 2,493 Targeted proceeds 7,000 7,000 Implied P/B 2.4x 2.8x Note: Assumes 70/30 debt to equity ratio. Based on WSKT's 1H17 financial statements. Jasa Marga (Persero) TBK PT (JSMR.JK / JSMR IJ) 18

19 Financial summary Figure 29: Key forecasts summary, 2015A-20E Key earnings drivers 2015A 2016A 2017E 2018E 2019E 2020E CAGR ( ) Traffic volume (mn vehicles) 1,374 1,362 1,460 1,548 1,646 1,734 6% % Change Yr/Yr 4.6% -0.9% 7.2% 6.1% 6.3% 5.3% Average toll tariff (Rp / vehicle) 5,184 5,542 5,984 6,482 7,298 7,930 9% % Change Yr/Yr 2.4% 6.9% 8.0% 8.3% 12.6% 8.6% Length of operating toll road (km) ,006 1,278 1,278 21% % Change Yr/Yr 2.4% 0.7% 35.2% 25.4% 27.1% 0.0% Fundamentals Summary 2015A 2016A 2017E 2018E 2019E 2020E CAGR ( ) Length of operating toll road (km) ,006 1,278 1,278 21% % Change Yr/Yr 2.4% 0.7% 35.2% 25.4% 27.1% 0.0% Traffic volume (mn vehicles) 1,374 1,362 1,460 1,548 1,646 1,734 6% % Change Yr/Yr 4.6% -0.9% 7.2% 6.1% 6.3% 5.3% Average toll tariff (Rp / vehicle) 5,184 5,542 5,984 6,482 7,298 7,930 9% % Change Yr/Yr 2.4% 6.9% 8.0% 8.3% 12.6% 8.6% Toll revenues (Rp bn) 7,121 7,927 8,736 10,036 12,017 13,749 15% % Change Yr/Yr 7.1% 11.3% 10.2% 14.9% 19.7% 14.4% Key Financials 2015A 2016A 2017E 2018E 2019E 2020E CAGR ( ) Total Revenue 9,848 16,661 35,244 29,302 26,228 21,988 % Change Yr/Yr 7% 69% 112% -17% -10% -16% Toll road revenue 6,646 7,927 8,736 10,036 12,017 13,749 % Change Yr/Yr 15% 19% 10% 15% 20% 14% Other operating revenue ,455 1,729 1,936 2,100 % Change Yr/Yr -13% 78% 61% 19% 12% 8% Construction revenue 2,218 7,829 25,053 17,537 12,276 6,138 % Change Yr/Yr 14% 253% 220% -30% -30% -50% Total Revenue ex. Construction (Rp bn) 7,631 8,832 10,191 11,765 13,952 15,850 16% % Change Yr/Yr 6% 16% 15% 15% 19% 14% EBITDA (Rp bn) 4,216 5,044 5,914 6,812 8,140 9,863 18% % Change Yr/Yr 9% 20% 17% 15% 19% 21% Interest expense (Rp bn) 1,405 1,509 2,004 2,583 3,374 3,750 26% % Change Yr/Yr 16% 7% 33% 29% 31% 11% Net Income to parent (Rp bn) 1,466 1,889 2,267 2,307 2,190 2,844 11% % Change Yr/Yr 4% 29% 20% 2% -5% 30% EPS (Rp) % % Change Yr/Yr 4% 28% 13% 2% -5% 30% Total Debt 15,921 25,020 36,945 44,937 53,337 45,737 % Change Yr/Yr 20% 57% 48% 22% 19% -14% Net debt 12,591 20,887 31,380 40,861 47,459 40,330 % Change Yr/Yr 26% 66% 50% 30% 16% -15% Key Ratios 2015A 2016A 2017E 2018E 2019E 2020E Operating margin as % revenue (ex. Construction) 46% 47% 48% 48% 47% 51% EBITDA Margin 55% 57% 58% 58% 58% 62% Net Profit Margin 19% 21% 22% 20% 16% 18% Liabilities to equity 2.0x 2.3x 2.6x 2.8x 2.0x 1.5x Debt to equity 1.3x 1.5x 1.7x 1.9x 1.7x 1.3x Interest coverage ratio 2.5x 2.8x 2.4x 2.2x 2.0x 2.1x Return on Equity 14% 14% 14% 13% 11% 13% Revenue and EBITDA assumptions We forecast revenue and EBITDA CAGRs of 16% and 18%, respectively Our estimates imply that at km of new toll roads could come online in the next few years. While near-term transaction volume calculation has been affected by elimination of several toll gates, traffic flow is expected to improve. The company has planned for system integration, and three toll gates are subject to removal this year: Karang Tengah; Cibubur Utama; and Cimanggis Utama. We also forecasted bi-annual tariff hikes of ~12% to play out in 4Q17. Tariff increases for most toll roads during 4Q of odd years should benefit topline growth during even years (such as 2018). We project EBITDA CAGR that is faster Jasa Marga (Persero) TBK PT (JSMR.JK / JSMR IJ) 19

20 Net debt (Rp bn) Interest coverage ratio 7 August 2017 than revenue to take into account higher labor efficiencies and rising e-toll penetration. Subsequently, long-term EBITDA margins might stabilise in the mid-60% range. In 1H17, the company's revenue and net profit came in at 45% and 54% of FY17 consensus forecasts, respectively. Toll and other operating revenue posted ~5% YoY growth, but operating profit rose by 24%, underscoring operating leverage. Figure 30: JSMR earnings appear most sensitive to the changes in interest cost, along with volume growth and tariff hikes in Rp bn 2018 EBITDA 2018 net income +1% base -1% +1% base -1% Average volume growth 6,919 6,812 6,719 2,373 2,308 2,251 Average tarriff growth 6,917 6,812 6,674 2,385 2,308 2,212 EBITDA margin 6,918 6,812 6,703 2,381 2,308 2,232 % change from base Average volume growth 1.6% 0.0% -1.4% 2.8% 0.0% -2.5% Average tarriff growth 1.5% 0.0% -2.0% 3.4% 0.0% -4.1% EBITDA margin 1.6% 0.0% -1.6% 3.2% 0.0% -3.3% in Rp bn 2018 net income +25bps base -25bps Implied average interest rate 2,368 2,308 2,247 % change from base 2.6% 0.0% -2.6% Rising debt profile could be manageable Additional turnkey projects for JSMR (as the project owner) appears plausible on the back of the Contractor Pre Financing (CPF) scheme, where construction costs to the SOE contractors are paid only after the project is finished. An example of such scheme is with Waskita and Acset on the Jakarta-Cikampek II Elevated, and with Waskita on Batang- Semarang. Such CPF scheme would result in lower implied interest rate in Nonetheless, management anticipates the D/E ratio to peak at 2.95x, well below the covenant limit of 5x. Moreover, the interest coverage ratio by 2019 is forecast to be 1.29x, slightly above the covenant minimum of 1.25x. Pertaining to additional financing needs, we think the recent S&P upgrade could provide a more favourable backdrop for management to issue bonds. Figure 31: Net debt is expected to rise on high capex, but interest coverage ratio might be manageable 75,000 65,000 55,000 45,000 35,000 25,000 15,000 5,000 (5,000) E 2018E 2019E 2020E 3.0x 2.8x 2.6x 2.4x 2.2x 2.0x 1.8x 1.6x 1.4x 1.2x 1.0x Net debt (CS) Interest coverage ratio (CS) Jasa Marga (Persero) TBK PT (JSMR.JK / JSMR IJ) 20

21 Dividend Management expects the payout ratio to climb to 30% from 20%, as requested by the Government of Indonesia, which is JSMR's largest shareholder (70% ownership). Figure 32: We estimate a 30% payout ratio going forward % % % 30% 30% 30% % % 50% 40% 30% 20% 10% E 2018E 2019E 2020E 0% Dividend (Rp bn) Payout ratio Jasa Marga (Persero) TBK PT (JSMR.JK / JSMR IJ) 21

22 Figure 33: Sensitivity of equity value to WACC (%) Valuing JSMR: Rp6,650 TP, 22% upside We introduce our new earnings forecasts and revise target price to Rp6,650, which we derive using DCF with WACC of 9.5%, implying a 2017 EV/EBITDA of 14x. As a frame of reference, our WACC assumption is approximately in line with the Bloomberg forecast of 9.5%. This suggests the stock could trade in line with its historical average. Target price methodology: We use a DCF approach through 2065 with zero terminal value and 9.5% WACC assumption. Peer valuation: We apply an implied EV/EBITDA multiple range to our forecasts to arrive at a fair equity value range for JSMR. As a frame of reference, JSMR trades at a slight premium relative to regional peers. We believe this is warranted in light of the underpenetrated market. W A C C Perpetuity Grow th 0.0% 9.1% 7, % 7, % 6, % 6, % 5,981 Source: Credit Suisse estimates Figure 34: Summary of valuation based on various methodologies EV/EBITDA 2021 Comments EV/EBITDA multiple 9.7x Historical avg. of 13.0x, STDEV -1: 10.2x 2021 discounted EBITDA (Rp bn) 8,255 Target EV (Rp bn) 80, discounted net debt (Rp bn) 23, discounted minority Interest (Rp bn) 8,838 Equity Value 48,159 Share count (bn shares) 7.3 Equity Value/Share (Rp) 6,636 Equity Value/Share (Rp) 6,650 Rounded % Upside/Downside 19% Source: Credit Suisse estimates, Bloomberg Figure 35: Comparison between JSMR's growth profile and valuation vs regional players Price Mkt Cap Company Ticker Rating (local) US$ mn 17E 18E 17E 18E 17E 18E 17E 18E 17E 18E yield 17E 18E 17E 18E 17E 18E 17E 18E Jasa Marga JSMR.JK O 5,550 3, % 58% 17% 15% % 18% 28% % 13% CCR CCRO3.SA n/a ,079 2,572 2,666 1,597 1,781 62% 67% 7% 12% % -20% 40% % 42% Zhejiang Express 0576.HK NC 9.9 5,473 1,530 1,630 1,052 1,118 69% 69% 10% 6% % 4% 8% % 17% Bangkok Expressway and Metro PLC BEM.BK O 7.4 3, % 60% 22% 10% % 26% 10% % 11% Promotora y Operadora de Infraestructura, S.A.B. d Revenue EBITDA EBITDA margin EBITDA growth EV/EBITDA (x) Dividend EPS growth (%) P/E (x) P/B (x) ROE (%) PINFRA.MX O , % 65% -2% -7% % 8% 1% % 16% OHL Mexico OHLMEX.MX NC ,496 1,161 1, % 78% 12% -12% % 36% 14% % 11% Jiangsu Expwy 0177.HK NC ,776 1,414 1, % 65% 7% 5% % 5% 6% % 16% SZ Expressway 0548.HK NC % 70% -5% 9% % 7% 9% % 10% Sector Average (ex-jsmr) % 68% 7% 3% % 9% 12% % 18% Source: Note: Priced as of Aug 2, O = Outperform, N = Neutral, U = Underperform, NC = Not Covered. Source: RAVE, Company data Jasa Marga (Persero) TBK PT (JSMR.JK / JSMR IJ) 22

23 Jasa Marga stands out with mid-teens EBITDA growth compared to emerging market peers with expected single-digit EBITDA growth. JSMR has the lowest E EBITDA margin, but this reflects room for improvement. Domestically, Jasa Marga trades below recent toll road deals in Indonesia that recorded more than 3x P/B deal multiples, excluding the Waskita Toll Road (WTR) stake sale. Figure 36: P/B looks attractive compared to recent toll road transactions Book value (Rp bn) P/B D/E Description Waskita Toll Road stake sale 3, /30 Mostly toll roads under development Cikampek-Palimanan 2, /30 Launched in 2015 Semarang-Solo /30 First section launched in 2015 Average 2.6 JSMR * 16, /27 * Forward P/B value as of 31 July D/E based on our FY17 assumption Figure 37: EV/km valuation implies that JSMR trades at a reasonable valuation 2016A 2017E Total length (km) EV (Rp bn) * 70,000 70,000 EV/km Replacement cost (Rp bn/km) % EV/km of replacement cost 98% 74% Potential upside (%) 2% 26% *as of 31 July 2017, per Bloomberg This assumes replacement cost is equivalent to investment cost Note: This assumes replacement cost is equivalent to investment cost. Source: Company data, Credit Suisse estimate Figure 38: Foreign ownership has improved by 1% of free float YTD; still below historical high of 64% 70% 60% 50% 40% 30% 20% 10% 0% 62% 64% 63% 58% 55% 53% 55% 55% 53% 52% 51% 54% 53% % Foreign ownership Note: Ownership as % of free float. 70% of JSMR outstanding shares is owned by Government of Indonesia. Source: Kustodian Sentral Efek Indonesia (KSEI). Jasa Marga (Persero) TBK PT (JSMR.JK / JSMR IJ) 23

24 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 7 August 2017 Figure 39: JSMR's 12M forward EV/EBITDA in line with the historical average 21.0x 19.0x Figure 40: but trades at a 27% discount to historical average 12M P/B 6.0x 5.0x JSMR Forward P/B Band 8Y 17.0x 15.0x 13.0x 11.0x 9.0x 7.0x STDEV+1 = 15.8x Average = 13.0x Current = 13.0x STDEV-1 = 10.2x Implied 2021 EV/EBITDA 9.7x 4.0x 3.0x 2.0x 1.0x STDEV+1 = 4.17x STDEV-1 = 2.39x Average = 3.28x Target P/B 2.9x Current = 2.41x 5.0x 0.0x EV/EBITDA Average STDEV-1 STDEV+1 Historical PBV Average STDEV-1 STDEV+1 Source: The BLOOMBERG PROFESSIONAL service, Company data, Credit Suisse estimates Source: The BLOOMBERG PROFESSIONAL service, Company data, Credit Suisse estimates Figure 41: and 15% discount to the historical average 12M forward P/E 39.0x 34.0x STDEV+2 = 34.6x 29.0x STDEV+1 = 23.4x 24.0x Average = 21.3x 19.0x 14.0x STDEV-1 = 14.6x Implied 2021 P/E 18.0x 9.0x Current = 18.1x Historical PE Average STDEV-1 STDEV+1 STDEV+2 Source: The BLOOMBERG PROFESSIONAL service, Company data, Credit Suisse estimates Figure 42: JSMR is among the top 10 stocks with best EPS revisions in the market, IBES Jasa Marga (Persero) TBK PT (JSMR.JK / JSMR IJ) 24

25 Jasa Marga: Credit Suisse HOLT view (Note: Credit Suisse HOLT is not part of Equity Research) Figure 43: HOLT analysis suggests 16% upside per Rp6,559 warranted price Source: Credit Suisse HOLT Jasa Marga (Persero) TBK PT (JSMR.JK / JSMR IJ) 25

26 Key investment risks Lower-than-expected traffic and tariff hikes, land acquisition delays, financing bottlenecks, rising involvement in lower IRR projects, unexpected government intervention. One of the main risks is increased involvement in lower IRR projects. For example, IRR at recent Kuala Tanjung-Tebing Tinggi-Parapat section would be at 12% (instead of 14%). This assumes viability gap funding (VGF) commitment by the government (at 50 km), and will be owned by Hutama Karya (40%), Jasa Marga (30%), and Waskita Toll Road (30%). Jasa Marga (Persero) TBK PT (JSMR.JK / JSMR IJ) 26

27 Appendix Figure 44: Jasa Marga's group structure of cooperation Jasa Marga is a leading toll road operator in Indonesia with 38 years of experience. The company manages and operates 593 km of toll roads, with 61% share but 80% share of average daily traffic on toll roads. It is running 18 toll road business subsidiaries and four non-toll road business subsidiaries. The company is working on 18 new projects currently. JSMR shares are 70% owned by the government. Source: Company data Figure 45: JSMR's management team Board of Commissioners Refly Harun Agus Suharyono Boerdiarso Teguh Widodo Sigit Widyawan Sugiharjo Muhammad Sapta Murti Position Independent Commissioner Commissioner Commissioner Independent Commissioner Commissioner Commissioner Board of Directors Desi Arryani Donny Arsal Mohammad Sofyan Subakti Syukur Hasanudin Kushartanto Koeswiranto President Director Finance Director Operation Director I Operation Director II Development Director Human Resources and General Affairs Director Source: Company data Jasa Marga (Persero) TBK PT (JSMR.JK / JSMR IJ) 27

28 Figure 46: Jasa Marga's extensive toll road network; primarily in Java Source: Company data Figure 47: Toll road regulatory framework; competitive bidding with strict financial closure requirement. Initial tariff calculated based on investment feasibility, with adjustment once every two years based on CPI Source: Company data Figure 48: Toll road's business characteristics and Jasa Marga's financing strategy Source: Company data Jasa Marga (Persero) TBK PT (JSMR.JK / JSMR IJ) 28

29 SOE capex will be a crucial driver of infra development Figure 49: Available balance sheet capacity for listed and non-listed SOEs 2017 Dec-16 Capex Implied Revenue Net income Debt Equity Cash Net guidance D/E interest (Rp tn) (Rp tn) (Rp tn) (Rp tn) (Rp tn) D/E Major SOEs (Rp tn) rate PLN % Pertamina % WSKT % TLKM % JSMR % PTPP % WIKA % Hutama Karya * % Angkasa Pura II % Angkasa Pura I % KAI * % PGAS % SMGR % PTBA % Pelindo II * % Pelindo III % ADHI % Total 391 1, , % * numbers as of Dec 2015 USD/IDR rate 13,300 Source: Company data. Notes: *As of FY15; Debt: interest bearing portion. S&P has upgraded Indonesia's sovereign credit rating to BBB- from BB+ (positive), citing an improvement in fiscal metrics as the main reason. One of the drivers was strengthened focus on productive spending towards infra, healthcare, and education. Our economist Santitarn Sathirathai expects GDP growth to accelerate from 5% seen in 1Q, led by domestic demand, to 5.2% for full-year. More debt issuance should support capex, and room for gearing exists, in our view. As a reminder, the bulk of Indonesia's capex will be driven by SOEs rather than the government budget. The Minister of SOEs has encouraged the relevant companies to take on incremental debt if financials permit. As an example, we observe that Angkasa Pura II (airports) had ~Rp20 tn in equity but only 0.2x D/E. Among listed cos, WSKT, PTPP, and WIKA have planned to issue additional debt. According to Bisnis Indonesia, SOEs' bond issuance could reach Rp65 tn this year vs Rp33 tn in FY16. Jasa Marga (Persero) TBK PT (JSMR.JK / JSMR IJ) 29

30 Figure 50: Waskita Toll Road s pipeline Toll road Road length (km) Share ownership (%) Completion target Kanci-Pejagan Operating Pejagan-Pemalang Section 1 & 2 operating; all by 2017 Bekasi-Cawang-Kampung Melayu km in 2017 Depok-Antasari Cimanggis-Cibitung km in 2017; remaining in 2018 Pemalang-Batang Ciawi-Sukabumi Medan-Kualanmu-Tebing Tinggi km in 2017; remaining in 2018 Semarang-Batang Ngawi-Kertosono Solo-Ngawi Legundi-Bunder Kayu Agung-Pelembang-Beting Cinere-Serpong Pasuruan-Probolinggo Cileunyi-Sumedang-Daawuan Cibitung-Cilincing Total 844 Source: Company data Figure 51: Map of national strategic projects; Java, Sumatera key focus Source: Committee of Infrastructure Priorities Development Acceleration ("KPPIP") The government's latest 245 national strategic projects list (vs 225 previously) comprises of 190 existing projects (Rp2,861 tn total value), along with 55 new ones (Rp1,198 tn). Private inflow would be critical to achieve this, in our view. Among the projects offered at the OBOR Summit include Kuala Tanjung International Port, railway (North Sumatera), and Bitung International Port (North Sulawesi). Jasa Marga (Persero) TBK PT (JSMR.JK / JSMR IJ) 30