Litrak - Hit by revision to amortization of HDE HOLD

- Maintain HOLD on Lingkaran Trans Kota Holdings (Litrak), with our fair value being cut to RM3.93/share (previously: RM4.05/share) on a lower-than-expected FY12 results – as we roll over our valuation base to FY13F. Our lower fair value is pegged to an unchanged 15% discount to Litrak’s DCF value (at 7% for LDP and 8% for SPRINT).

- Litrak recorded an unexpected net loss of RM18.9mil in 4QFY12, bringing total net profit for the full year to RM83mil and coming in at 36%-37% behind both consensus and our full-year estimates.  

- The quarter loss was primarily due to higher-thanexpected amortisation charges for highway development expenditure (HDE) following a review of the group’s toll revenue that was carried out by its independent consultant.

- This more than offset a 12% YoY jump in Litrak’s revenue owing to the full-year impact from an accrual of LDP’s scheduled toll rate hike effective from 1 January 2011. For the year, we estimate that LDP’s toll traffic rose by ~2%.

- Group EBIT margins shrank from 75% in FY11 to 58% in FY12. Apart from the higher amortisation of HDE, its bottom line was impacted by changes to accounting standards relating to the provision of heavy repairs as per IC12 standards.  

- On a brighter note, the group’s share of losses at associate SPRINT, fell to RM10mil from RM27mil a year earlier. In our view, this was attributable to better traffic numbers recorded on the SPRINT highways, particularly for the Penchala toll. The route benefited from the opening of DUKE highway since May 2009. 

- Stacking it up, we have cut our FY13F-14F net profit forecasts by 30%-34% to RM89mil and RM97mil, respectively. We also introduce our FY15F net profit forecast at RM153mil, underpinned by a 2% growth on LDP traffic and partial impact from a scheduled increase in toll rates for SPRINT Damansara and Kerinchi.

- Litrak has been under the radar screen in recent months, after the local press reported that the toll operator has emerged as a target of PLUS Expressways. But, we reckon that it is highly unlikely for parent Gamuda to part ways with its cash-generating investments in Litrak – unless the offer is palatable.

- Our HOLD rating on LItrak is largely premised on its steady cash flow generation and decent yields of 4%-5%.  

Source: AmeSecurities