Wednesday 29 February 2012

Litrak - Turning heads HOLD


We maintain our BUY recommendation on Lingkaran Trans Kota Holdings (Litrak), with a higher fair value of RM3.90 (previously: RM3.77/share) – pegged to an unchanged 15% discount of its revised DCF value (WACC: LDP -8.1%, SPRINT – 8.6%).

The higher fair value encapsulates an 11% upgrade in FY12F net profit forecast (FY13F: +9%, FY14F: +5%) following a stronger-than-expected margin trajectory for 9MFY11.

Litrak’s 9MFY11 results came in ahead of expectations, accounting for 80%-85% of both consensus and our full-year estimates. The main positive variance, in our view, stemmed from better-than-expected EBIT margins (9MFY12: 77% vs 75% a year earlier).

During the period, the group’s bottomline surged 23% YoY arising from the full-year impact of a scheduled toll rate revision from 1 January 2011.

Sequentially, its earnings fell 2% QoQ to RM32mil. This was largely due to a marginal increase in operating expenses incurred during the quarter.

Litrak declared a second interim dividend/share (DPS) of 7 sen in 3QFY12, taking 9MFY12 DPS to 17 sen – matching the payout last year. We have assumed a total DPS of 18 sen for FY12, translating into a decent yield of 4%.

Litrak has been in the news recently, where the toll concessionaire is reportedly a take-over target of  PLUS Expressways along with SILK Holdings. 

But, we are unsure if Gamuda – Litrak’s major shareholder with a 45% stake – would be willing to part ways with the urban toll operator. This being the case, Litrak has been a steady generator of Gamuda’s cash flows over the years.

Moreover, the continued uncertainties over toll rate hikes and associated risk of back-ended cash flows (i.e. extension of concession period rather than outright cash payment as compensation for delays in toll hikes) is another drag.

Our HOLD rating is premised on its status as a core holding for investors seeking exposure to the toll concessions with the de-listing of PLUS and MTD Capital. This is backed by a decent yield offering of 4%-5%.

Source: AmeSecurities

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