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Friday, May 27, 2016

LITRAK - A Cash Cow With High Profitability - Alex Tan

LITRAK - A Cash Cow With High Profitability - Alex Tan
Author: Tan KW | Publish date: Fri, 27 May 2016, 05:26 PM

May 27, 2016 



It's been a while since I wrote about good companies for my readers. I believe that presenting these above-average companies to my readers, be it undervalued or overvalued, could save you a lot of time in finding your next gem.

Since there are so many public listed companies, many ordinary investors have been struggling to find ways to analyze all of them so as to unearth the diamonds in the market. However, they do not represent my recommendation so please exercise your judgment.

Without further ado, let me show you what I've got this time - Lingkaran Trans Kota Holdings Berhad (LITRAK), the operator of Lebuhraya Damansara Puchong (LDP).

For the Malaysians who live around the Klang Valley, LDP should be of no stranger to you as it is one of the major expressways within the Klang Valley. You will realize that there are many established shopping malls along the highway, hence it is considered the spine of Petaling Jaya.





Two things about LITRAK I bet most of you didn't know. Firstly, it is the shareholder of SPRINT. Secondly, it is the western section of Middle Ring Road 2 (MRR2), should sound familiar to 'Kepong Lang' (people living in Kepong).

In regards to its management, Gamuda Berhad holds about 45% of the company while LITRAK's managers own minimal stake. The small shareholdings of the managers concern me a lot.

There is no doubt about the company's profitability. However, the huge borrowing of the company worries many investors. As of March 2015, LITRAK's debt to equity ratio was about 240%. I would say this is the way the industry works due to huge capital expenditure needed. Why not also take a look at the cash ratio?




DP has many prestigious shopping malls such as One Utama, The Curve, Empire Damansara, IKEA, Tropicana City Mall, Paradigm Mall, and Sunway Pyramid. With their help and other developments along the highway, you should be pretty convinced of its consistent toll-able traffic.

Investors should also keep track of the future developments along LDP and SPRINT highways as they will increase traffic flow. Despite being a cash generator, LITRAK has its business risks as well.

The soon-to-be-completed MRT might cause more people to take public transport instead of driving. For drivers like myself, I believe, by using modern apps, will provide better road alternatives, especially those without toll stations, pose threat to LITRAK as well. Besides, the termination of concession agreement by the government, although unlikely, is the biggest risk of all. Frankly, I am not in the position to assess this risk.

Lastly, I would say that LITRAK is protected by an economic moat given by the government. Whether this gift will be continued indefinitely, I am not in the position to assess. Not to forget that as a result of this gift, LITRAK has been producing extremely good returns for its shareholders.

http://www.valueinvestingstock.com/#!A-Cash-Cow-With-High-Profitability/cour/57315df50cf287ca4949b4ed

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