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Monday, October 17, 2016

Highway play adds to Litrak’s allure

Monday, 17 October 2016
Highway play adds to Litrak’s allure

PETALING JAYA: The search for yields globally has fuelled expectations that Lingkaran Trans Kota Holdings Bhd (Litrak) could be a prime candidate for a takeover.

The Employees Provident Fund (EPF) and the Retirement Fund Inc (KWAP) are strong possible contenders for Litrak as it gives a stable and predictable cashflow for shareholders amid global uncertainties.

Litrak which owns and operates the heavily plied Damansara-Puchong Expressway (LDP) and the Sprint Highway will not be the first to be bought out, if this materialises, according to an analyst.

The North South Expressway (Plus) under Plus Malaysia Bhd was also privatised by UEM Group Bhd and the EPF back in 2011.

Other than Plus, the EPF also owns a 49% stake in the concession holder of the Cheras-Kajang Highway and 37.5% stake in the concession holder of the New North Klang Straits Bypass Expressway (NNKSB).

In a show of strength, Litrak’s share price have held steady and continues to rise to this day despite talk of a US Federal Reserve rate hike towards the end of the year.

In the year-to-date period, Litrak has gained almost 20% and last traded at its all time high of RM6.

The shares have also added on to earlier gains after the Government allowed a toll hike on both these highways a year ago.

Other yield assets especially in the utilities space have succumbed to some profit taking pressure in the past few weeks on building expectations for a rate hike.

The LDP has seen strong traffic growth as it plied the well-connected and high-density residential areas of Damansara, Bandar Utama, Puchong, Sunway and Kepong while the Sprint highway connects Petaling Jaya to the western part of KL.

Despite a rise in its share price, Litrak still offers compelling yields of 5.6% for shareholders.

In the past one year, the company has paid 35 sen back to shareholders.

Its strong dividend yields may well explain why its share price have held steady amid the talk of a rate hike globally.

Locally also it has factors going for it that increased its investment appeal after the move by Bank Negara in July 2016 to unexpectedly slash interest rates by 25 basis points to 3%.

At current prices, Litrak is trading at a historical price to earnings ratio (PER) of 16.3 times against a one-year forward PER of 12.5 times.

With a market capitalisation of RM3.14bil and total assets to date of RM2.2bil it would not be difficult for either the EPF or KWAP to announce a takeover of Litrak.

The substantial shareholders of Litrak also include the EPF which is the third single largest shareholder with a 6.71% share, while its largest shareholder is Gamuda Bhdwith a 43.93% stake followed by AmanahRaya Trustees Bhd – Amanah Saham Bumiputra with a 7.19% share.

Litrak’s revenue has been growing steadily in the past five years averaging at about 3.2% a year from RM358.7mil in the financial year 2012 to RM416.2mil in the FY16.

Profits likewise has also grown in the five years from FY12 to FY16 from RM83.2mil to RM174.1mil, a new historical high.

The company in its quarterly update attributed the significant increase in pretax profit in the current financial year-to-date as compared to the immediate preceding corresponding period to the higher revenue recognised from the scheduled toll rates increase for the LDP.

Interestingly, Litrak has continued to perform well despite the intense building of more public transportation infrastructure within Klang Valley.

TA Research believes that the lack of sufficient and efficient first mile and last mile transport connections to the LRT or MRT stations will not be able to result in a meaningful switch in modes of transport from private to public transportation.

In a research report published after Litrak announced its quarterly results in September, TA says that it does not expect significant threats to the traffic volumes of LDP and Sprint from the completion of the LRT extensions and the soon to be completed MRT Line 1.

“We expect these lines to have minimal impact on traffic plying on the LDP and Sprint,” TA says.

TA has a sell recommendation on Litrak with a target price of RM5.58 based on its discounted free cash flow valuation of RM5.58, and an unchanged required rate of return of 5.3%.

Litrak has outperformed analysts expectations which mostly had their sell calls on the stock, only one analyst from MIDF has rated it a buy with a target price of RM6.50.

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