INITIAL PUBLIC OFFERING ANALYSIS - Ideal...Initial Public Offering: TransJamaican Highway Limited 5 | P a g e constitute an offer to buy or sell. All analyses performed by Ideal Portfolio

All analyses performed by Ideal Portfolio Services (IPS) are intended to be read in its entirety. Should there be any uncertainty, please feel free

to get in contact with our Advisory team so that they may provide further clarity.

INITIAL PUBLIC

OFFERING

ANALYSIS: TransJamaican Highway

Limited (TJH)

February 7, 2020.

Initial Public Offering: TransJamaican Highway Limited

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COMPANY OVERVIEW TransJamaican Highway (TJH) developed, operates, and maintains the Highway 2000

East-West toll roads. Highway 2000 East-West is a 49.9km tolled motorway with two

distinct corridors: between Kingston and May Pen, and between Portmore and Kingston.

The company, as concessionaire, operates the Highway 2000 East-West under a

concession agreement signed November 2001 (amended and restated 28 January

2011) and on 29 January 2020, granted by National Road Operating & Construction

Company (NROCC) the concession Agreement. The concession is for a period of 35

years, with 17 years remaining to expiry.

At a total cost to date of approximately US$1.3 billion, Highway 2000 remains the

largest infrastructure project ever implemented in Jamaica. Highway 2000 East-West

was the first toll road to be built and operated in Jamaica and was effective in

shortening the commute between Kingston and May Pen and Kingston and Portmore.

The Government of Jamaica (GOJ), through NROCC, a state-owned entity, purchased

100% of the ordinary shares in TransJamaican Highway in December 2019. These

shares are now being offered to the general public by way of listing on the Jamaica

Stock Exchange (JSE).

RECOMMENDATION Jamaicans have been presented with the opportunity to own a piece of a large cash

generating infrastructure i.e. the toll via this Initial Public Offering (IPO). Favourably,

TransJamaican has seen consistent growth in revenue for the last five (5) years.

Outside of toll increases, revenue is expected to further grow, coinciding with increases

in traffic. Using an independent traffic consultant (Steer), it is projected that traffic for

Highway 2000 East-West will increase year over year (YoY) over the period 2020-2036.

We note as per the concession agreement, the company has the first right of refusal to

maintain, operate and/or own the May Pen to Williamsfield leg of Highway 2000. This


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signifies an additional 28km that TransJamaican could be operate. The company has

also indicated that they may pursue opportunities to design, develop and manage

crucial infrastructure projects both locally and regionally.

We are of the view that this as an excellent asset to include in one’s investment

portfolio for diversification purposes, particularly those who seeks consistent dividend

income and has long term investment objectives.

Based on the opportunity highlighted, as well as the discounted offer price of J$1.41,

we are recommending a BUY.

OFFER DETAILS

Isssuer Transjamaican Highway Limited

Listing Exchange Jamaica Stock Exchange's Main Market

Shares Offered

The company is offering up to 8,000,000,000 Ordinary Shares (with the option to upsize by an

additional 2,000,000,000) of which:

* 2,637,037,037 shares are available to the general public.

* 88,888,889 shares are reserved for Employees of the company and its Key Operating Parties

("the Concession companies").

* 296,296,296 shares are reserved for eTag customers for Highway 200 East-West leg (on

record as at February 14, 2020).

* 829,629,630 shares are reserved for Public Sector Employees.

* 2,074,074,074 shares are reserved for the Underwriter (NCB Capital Markets & Jamaica

Money Market Brokers).

* 2,074,074,074 shares are reserved for Registered Pension Funds.

Share Price Shares are available at US$0.01 or J$1.41 per share.

Minimum Application 1,000 shares and in increments of 1,000 shares thereafter.

Basis of Share Allotment To be annouced subsequent to the close of the offer.

Use of Funds

The Company intends to use the proceeds (after transaction cost) to fund redeem the Equity

Bridge Notes as well as to purchase the Transjamaican shares held by the selling

shareholders; use of the balance of the proceeds will be decided by the NROCC and the

Ministry of Finance & Planning.

Offer Opening Date February 17, 2020 9:00AM

Offer Closing Date March 9, 2020 4:30PM

Proposed Dividend PolicyThe company intends to pay out an average dividend yield of 5.3% to 8.7% in 2020-2025

and an average yield of 24.5% to 35.8% thereafter.

Refund

Unsuccessful applicants or applicants who only received partial allocation of shares applied for,

can expect a refund within ten (10) business days after the closing of the application period.


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FINANCIAL ANALYSIS1 Over the last five years TJH

has seen consistent growth

in revenue. Revenue rose

from US$34.96M in 2014 to

US$52.43M in 2018. This

represents a compound

annual growth rate (CAGR)

of 8.44%.

Based on the information

provided in the prospectus

the Company declared a net

profit in 2017 financial year,

after three (3) successive

years of net losses.

TransJamaican went a step

further, recording net profit

and net profit margin of

US$6.35M and 12.11%,

respectively, in financial year 2018. This represents a US$4.6M or 263.06% increase,

YoY.

In reviewing the company’s

year to date performance,

TransJamaican recorded a

nine month (9M - 2019) net

profit of US$2.14M. This

represents a US$3.7M or

63.41% decrease when

compared to the same period

in the previous year. In

context, the company recorded an increase in revenue that was due to a toll rate

increase in the current financial year. Additionally, TJH recorded only a marginal

increase in operating expenses and administrative expenses that outpaced revenue

growth. Ultimately, TransJamaican saw a significant decline in net profit when

compared to the same period in the previous year as they restructured their debt result

in a 23.6% increase in finance costs. 1 TransJamaican Highway’s nine months financials ignores estimated tax in its bottom line profit


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TJH has consistently seen YoY

decline in total assets. As at

the end of September 2019

(9M 2019), total assets stood

at US$293.72M, a US$16.8M

or 5.41% decrease when

compared to the end of

December 2018. This was

primarily due to the

amortization of intangible

assets; amortization is based

on projected traffic usage.

Disclaimer

All opinions and estimates constitute Ideal Portfolio Services’ judgment as of the date of publication. All opinions expressed by Ideal Portfolio

Services (IPS) are subjected to change without prior notice. The information contained herein was obtained from sources which we consider to

be reliable. However, we have not independently verified such information and thus make no guarantee of the data’s accuracy or

completeness. IPS shall not be liable for any actions taken on the part of investors in reliance on the opinions stated. IPS and/or its agents may

have a proprietary interest in the securities it reviews and express an opinion on. Any recommendation offered by IPS are indicative and do not


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constitute an offer to buy or sell. All analyses performed by Ideal Portfolio Services (IPS) are intended to be read in its entirety. Should there be

any uncertainty, please feel free to get in contact with our Advisory team so that they may provide further clarity.

APPENDIX

Financial Statements

US$ Millions 2014 2015 2016 2017 2018 9M 2018 9M 2019

Revenue 34.96 38.23 40.34 46.13 52.43 39.02 39.26

Other Gains & Losses 2.47 2.40 2.86 3.85 4.12 2.55 2.73

Operating Expenses 27.57 28.56 30.17 31.23 33.05 24.02 25.47

Administrative Expenses 1.15 1.04 1.02 1.06 1.13 0.74 0.84

Finance Costs 20.17 17.49 16.13 15.87 15.37 10.96 13.55

Net Profit before Tax 11.47 6.46 4.12 1.82 7.01 5.84 2.14

Taxation - - - 0.07 0.66 - -

Net Profit 11.47 6.46 4.12 1.75 6.35 5.84 2.14

Transjamaican Highway Limited

Statement of Comprehensive Income

US$ Millions 2014 2015 2016 2017 2018 9M 2019

Cash Flow from Operating Acitivites 2.73 5.90 7.12 13.57 18.64 11.10

Cash Flow from Investing Acitivites 1.75 2.66 1.65 4.69 3.38 4.00

Cash Flow from Financing Acitivites 1.04 3.80 4.47 8.59 21.48 15.43


Statement of Cash Flows


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US$ Millions 2014 2015 2016 2017 2018 9M 2019

Non-Current Assets

Property & Equipment 1.55 1.45 1.33 1.13 0.91 0.78

Right of Use Asset - - - - - 0.21

Intangible Assets 325.83 312.21 297.81 282.39 266.18 253.77

Restricted Cash 32.93 35.43 36.94 42.13 39.52 36.19

360.31 349.09 336.08 325.65 306.61 290.95

Current Assets

Owed by Related Parties 0.53 0.56 0.33 0.77 0.45 0.38

Other Receivables 0.58 0.23 0.37 0.39 0.43 0.34

Cash & Bank Balances 2.46 1.89 2.60 2.85 3.03 2.05

3.56 2.69 3.30 4.01 3.90 2.76

Total Assets 363.87 351.78 339.38 329.65 310.51 293.72

Shareholders' Equity

Share Capital 54.00 54.00 54.00 54.00 54.00 54.00

Accumulated Profit 13.39 6.93 2.81 4.56 2.95 5.09

67.39 60.93 56.81 58.56 56.95 59.09

Non-Current Liabilities

Lease Liability - - - - - 0.12

Derivatives Financial Instrument 8.88 8.33 6.87 5.54 3.98 5.26

Shareholder Grant 75.93 72.99 69.86 66.47 62.84 60.07

Borrowings 190.50 186.09 178.47 170.29 154.60 135.78

Provisions 9.37 10.11 11.18 12.38 11.86 11.09

284.68 277.52 266.39 254.67 233.27 212.32

Current Liabilities

Shareholder Grant 2.87 2.84 2.90 2.96 3.01 3.11

Lease Liability - - - - - 0.09

Provisions - 0.89 0.62 0.62 1.60 1.28

Income Tax Payable - - - 0.07 0.66 -

Owed to Related Parties 1.99 2.10 2.08 2.08 1.55 1.61

Borrowings 5.81 6.67 9.82 9.57 11.74 15.04

Contract Liabilites - - - - 1.00 0.97

Trade & Other Payables 1.13 0.82 0.76 1.13 0.73 0.20

11.80 13.32 16.18 16.42 20.29 22.31

Total Equity & Liabilites 363.87 351.78 339.38 329.65 310.51 293.72


Statement of Financial Position


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Shareholder Breakdown

Shareholder Breakdown Prior to Share Offering

Shareholder Breakdown Subsequent to Share Offering

SHARE CLASS SHAREHOLDINGSAPPROXIMATE %

OF SHARE CAPITAL

Ordinary Shares 27,000,000,000 100.00%

Preference Shares 1 0.00%

Total 27,000,000,000 100.00%

SHAREHOLDINGSAPPROXIMATE %

OF SHARE CAPITALSHAREHOLDINGS

APPROXIMATE %

OF SHARE CAPITAL

NROCC 4,501,000,000 36.01% 2,501,000,000 20.01%

Concession Companies 88,888,889 0.71% 111,111,111 0.89%

eTag Customers 296,296,296 2.37% 370,370,370 2.96%

Public Sector Workers 829,629,630 6.64% 1,037,037,037 8.30%

Underwriters 2,074,074,074 16.59% 2,592,592,593 20.74%

Registered Pension Funds 2,074,074,074 16.59% 2,592,592,593 20.74%

General Public 2,637,037,037 21.09% 3,296,296,296 26.37%

Total 12,501,000,000 100.00% 12,501,000,000 100.00%

SHAREHOLDER

IF OPTION TO UPSIZE IS NOT EXERCISED IF OPTION TO UPSIZE IS EXERCISED

Documents

INITIAL PUBLIC OFFERING ANALYSIS - Ideal...Initial Public Offering: TransJamaican Highway Limited 5 | P a g e constitute an offer to buy or sell. All analyses performed by Ideal Portfolio