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Wednesday, June 24, 2015

REVISED TARGET PRICE: TOLL HIKES WINNER!

Litrak is the owner of cash-collector LDP and SPRINT highways. The forever-congested LDP makes consistent profits with growth rate 2-3% p.a. Dividends will be at least 20sen for this year. Key catalyst is revision of toll rates by 33% to 40% for SPRINT which will turn it around starting Jan 2015. Last year, Litrak paid 20sen dividends when Sprint was losing some money. This year, Spirint will make profits, so dividend should be higher.
 
Come 1 Jan 2016, LDP toll rates will go up by 48%!! EPS was 27 sen last year. My conservative estimate is 30% EPS growth to 35sen. No major capex expected in near term, so most profits will be distributed to shareholders. Assuming 80% dividend payout, dividends for 2016 is estimated at 28sen. My target price for Litrak is RM5.60 (32% return) based on 5% dividend yield.

If the toll rates are not revised, Litrak will get compensation from the government as stipulated in the CA.

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We met up with the Management of Litrak recently, with key takeaways being;
1) dividends will be at least 20 sen in FY16,
2) performance of SPRINT will be further improved after the toll rates adjustments from Jan 1, 2015 and
3) LDP's performance expected to remain at growth rate of 2-3% p.a.
No major maintenance costs are expected in the near term. We continue to like Litrak for its undemanding valuations, supported by attractive dividend yield of c.4.8%. We maintain our Outperform call on Litrak with unchanged TP of RM4.60 based on DCF valuations.Operating performance. The average tollable traffic on LDP has improved further, with Penchala toll plazas registering 140,000 vehicles and Petaling toll plazas with 151,000k vehicles. Elsewhere, Puchong Barat and Puchong Selatan received 98,000 and 114,000 vehicles respectively. As for SPRINT, the Damansara Toll plazas witnessed 61,000 vehicles.

Meanwhile, Penchala and Pantai toll plazas registered 90,000 and 103, 000 vehicles respectively.Toll rate adjustments. As per the concession agreements (CA), SPRINT adjusted the toll rates starting Jan 1, 2015, with Class 1 i.e. private cars increased by 50sen (or c.33%) to RM2.00 for Damansara link and meanwhile, toll rate for Pantai link rose by RM1 (or c.40%). As for LDP, the toll rates are due for adjustments from Jan 1, 2016 onwards, with Class 1 rates to be increased by RM1 (or c.48%) to RM3.10.

If the toll rates are not revised, Litrak will get compensation from the government as stipulated in the CA. The 33-year concession for the 26.5km Sprint Highway expires in 2030, while the concession period for Damansara and Kerinchi Links are 36 years (ending 2034) and Penchala link is 33 years (ending 2031).Maintain Outperform and TP of RM4.60. We continue to like Litrak for its stable earnings trajectory, strong free cash flow and growth certainty from rate hikes bound by the concession agreement. SPRINT was on track to achieve breakeven and in our view will further improve with toll rate hikes at the Kerinchi and Damansara Links.

Source: Public Invest

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