TransJamaican Highway Ltd Local Equity Report

Valuation

To value TJH, we chose to use a free cash flow to equity (FCFE) model, in which we forecast the Group’s financial statements from FY 2023 to FY 2036, coinciding with the expected end of the concession. In this regard, we made modifications to the long- term revenue forecast that management had provided during the IPO, with the most noticeable change being an upgrade in short-term growth, given the Group’s better- than-expected revenue performance.

Additionally, we ensured the incorporation of cost savings resulting from the new ownership structure with the acquisition of JIO, which will lead to significantly lower operating costs. The only drawback from this is the anticipation that the acquisition will result in higher administrative expenses, which the Group now includes from their subsidiary. However, the overall impact is a dramatic improvement in operating performance, as evidenced by higher net profits and increased cash flow generation.

Model-specific inputs include an estimated cost of equity of 13.75%. As a result, we forecasted free cash flow through 2036 and determined a fair value price target of $3.42 within the next year, compared to the last closing market price of $2.97. This represents an upside potential of approximately 15.24%. Please note that this analysis does not include the potential impact of the ongoing negotiations for the concession agreement for the new leg of Highway 2000 and a possible extension of the current concessionary arrangement held by the Group. Depending on the funding structure of the deal, this current price estimate may err on the conservative side. Combining this with the relatively attractive dividend yield of approximately 6.24%, we assigned an OVERWEIGHT recommendation to TJH. Dividend investors may choose to purchase for additional income while benefiting from the upside potential resulting from the ongoing negotiations. Even if negotiations were to fall through, we still believe that the income and growth potential, aided by improved operating efficiency, would justify the inclusion of this stock in one’s investment portfolio.