LITRAK (FV RM4.46 - BUY) FY12 Results Review: Stung by Lowered Traffic Projections

Litrak’s FY12 earnings of RM83.2m (-15.5% y-o-y) were a big letdown, coming in at a dismal 61.9% and 64.2% of our and consensus estimates respectively. The poor showing was due to lowered traffic projections on its LDP highway, which led to a chunky amortization expense in 4QFY12. Although this could likely spark some immediate selling pressure among the minorities, we continue to like Litrak as we believe FY13 could be a breakeven year for its SPRINT highway and given the ongoing talks on potential privatization by PLUS. Maintain BUY at a revised FV of RM4.46 based on our SOP valuation.

Amortization expense +>100% y-o-y. Litrak’s FY12 revenue of RM358.7m (+12.6% yo-y) was within our previous guidance of RM354.6m. Nonetheless, net profit sunk 14.7% y-o-y to RM83.2m owing to higher amortization expenses of RM104.9m (+>100% y-o-y) charged on its LDP highway following a revised traffic projection in 4QFY12. We gather that its LDP highway recorded an average daily traffic of 480k per day, falling short of the previous traffic projection done 5 years ago by some 10%. Hence, management took the advice of its independent consultant by accounting for lower traffic forecasts going forward and this resulted in a one-off lumpy allocation for the retrospective amortization of some RM67m according to our rough calculations. Stripping that out, FY12 core earnings would have come in at RM130.1m (coupled with the tax impact), in line with our previous forecast of RM134.3m. On a quarterly basis, the 4QFY12 top-line of RM89.1m marked a decent 6.5% y-o-y improvement but the bottom-line sunk into the red with core losses of RM18.9m owing to the RM76.6m amortization expense charged during the period.  

Forecasts revised. We revisited our model following its full-year results release for housekeeping purpose. After tweaking some of our assumptions such as higher amortization charges and lower EBITDA margins to adopt a more conservative stance in view of the current market volatility, our FY13 and FY14 net profit forecasts are revised downward by 6.6% and 5.1% respectively to RM132.6m and RM145.9m. We now expect  its 50%-owned SPRINT highway to break even in FY13 and  make  a marginal RM10m net profit in FY14, an improvement from the RM10m loss registered in FY12.

BUY. All in all, although FY12 earnings were largely disappointing, we remain optimistic of Litrak’s decent fundamentals which  enable it to offer appealing dividend payouts,while we also expect its SPRINT operations to finally break even this year. Rumours of a potential privatization offer by PLUS may also help provide  near-term  support  to its share price. Hence, maintain BUY with our FV now at RM4.46 (down  from RM4.72 previously)

Source: OSK