LITRAK Holdings

LITRAK Holdings: "Litrak’s 1Q FY10 earnings of RM23.4m (-31.8% y-o-y) were below our expectations. The y-o-y decline was mainly attributed to higher interest income last year from its pre capital repayment cash pile and higher interest income incurred this year. Traffic volume probably grew 2%–3% y-o-y in Q1. An interim dividend of 10 sen was declared (FY10f=15sen). Our TP is raised to RM3.03 based on a 30% discount to FCFE valuation. We continue to view Litrak as a defensive play. Maintain BUY.

Lower than expected. Although Litrak reported its 1Q FY10 revenue of RM76.4m, up 2.7% y-o-y, earnings declined by 31.8% to RM23.4m. This was mainly due to (i) higher interest income (i.e. other income) in FY09 earned on its cash pile before capital repayment (~RM500m), and (ii) higher interest expense incurred this financial year. From a y-o-y perspective, margins were down at all levels for the same reasons. EBIT and net margins came in at 79.4% and 30.6% respectively (FY09 comparatives at 88.1% and 46%). To sum up, 1Q earnings only made up 22.5% of our full year estimates, which we deem to be below expectation.

Seasonally stronger quarterly. From a q-o-q perspective, revenue grew 4% while earnings jumped 19.8%. This was possibly attributed to seasonally weaker traffic along the LDP last quarter (i.e. Q4 FY09) due to the Chinese New Year festival. Reduced losses at 50%-owned SPRINT by 30.8% q-o-q also helped bump up earnings. We expect SPRINT to break even only in FY12.

Single concessionaire unlikely. Recently it was reported that privately held Asas Serbia SB would be taking private all the 22 toll concessionaries in Malaysia. We think this is unlikely given the enormous cost involved. The NPV of such a huge acquisition is unlikely to be positive should Asas actually reduce toll rates by 20%, as mentioned. The market cap of PLUS (Not Rated) and Litrak alone amount to RM18.2bn. We believe an NPV neutral solution via the government will be the likely outcome.

Defensive play, maintain BUY. Litrak declared a 10 sen interim dividend (single tier). We expect full year dividend to come in at 15 sen (5.6% yield). We have raised our longer term traffic volume assumptions for the LDP as we think our previous estimates may have been too conservative. We also update our Free Cash Flow to Equity (FCFE)-based valuation for Litrak’s latest cash balance. The TP is raised to RM3.03 (from RM2.80). Litrak’s share price should continue to be supported by continued speculation of a privatisation.

52 week H | L Price (RM) 3.18 1.56

Major Shareholders (%)
Gamuda 46.2
Employees Provident Fund 6.0
Prudential Unit Trust 2.5

LITRAK is the concessionaire for the LDP Highway. It also holds a 50% stake in the SPRINT Highway.

By OSK188
Analyst: Jeremy Goh

"