Stock Name: PLUS
Company Name: PLUS EXPRESSWAYS BHD
Research House: OSK
PLUS Expressways Bhd
(May 24, RM3.34)
Maintain buy at RM3.34 with lower target price of RM4.25: PLUS' 1QFY10 revenue rose to RM813.2 million (+10.2% year-on-year, -4.8% quarter-on-quarter) and earnings to RM299.1 million (+7.4% y-o-y, -5% q-o-q). Earnings before interest and tax (Ebit) margins increased y-o-y at 74.4% versus 70% last year, mainly due to better cost management. Net margins were, however, lower y-o-y at 36.8% versus 37.8% mainly due to a higher effective tax rate as certain interest expenses were not tax deductible. To sum up, the 1Q results were in line at 23.7% of our full-year estimates and 24.4% of consensus.
Traffic volume on the NSE (North-South Expressway) grew by 9.1% y-o-y in 1Q. Growth was the strongest along the northern region (+18%) due to toll relocations, followed by the central region (+7.7%) and southern (+5.2%). The strong growth in traffic volume was mainly due to the low base effect witnessed in 1Q last year. The management expects growth rates to taper down in 2H as last year's low base effect would have diminished by then. It is guiding for an annual traffic growth of 3%-4%.
A 10% toll hike along the NSE was due in 2008 but was delayed to 2009 and later to an indefinite date. The management indicates that it has not heard from the government if the increase would take place this year. We are of the opinion that a toll hike will not materialise this year. Allowing a toll hike would imply two back-to-back increases as another scheduled hike (+10%) is due in 2011. The government may wish to tackle other subsidies such as gas and electricity first before toll rates.
The main impact from FRS139 is on PLUS' non-cash toll compensation recoverable from the government, which will be offset against future taxation. The present value (PV) of the offset against future taxation is computed and subtracted off the initial book value. The difference between the two is charged to retained earnings, thus reducing earnings. It is important to note that these changes are non-cash items.
As traffic growth rates are expected to normalise in 2H, we cut our traffic volume forecast on the NSE from 5% to 4%. We trim our FY10-FY12 earnings by an average of 2.2%. This reduces our free cash flow to the equity owners-based (FCFE) (9.2% equity cost) valuation to RM4.25. Nonetheless, we retain our buy rating. Yields at the current share price are decent at 5%- 6.6%. ' OSK Research, May 24
This article appeared in The Edge Financial Daily, May 25, 2010.
Company Name: PLUS EXPRESSWAYS BHD
Research House: OSK
PLUS Expressways Bhd
(May 24, RM3.34)
Maintain buy at RM3.34 with lower target price of RM4.25: PLUS' 1QFY10 revenue rose to RM813.2 million (+10.2% year-on-year, -4.8% quarter-on-quarter) and earnings to RM299.1 million (+7.4% y-o-y, -5% q-o-q). Earnings before interest and tax (Ebit) margins increased y-o-y at 74.4% versus 70% last year, mainly due to better cost management. Net margins were, however, lower y-o-y at 36.8% versus 37.8% mainly due to a higher effective tax rate as certain interest expenses were not tax deductible. To sum up, the 1Q results were in line at 23.7% of our full-year estimates and 24.4% of consensus.
Traffic volume on the NSE (North-South Expressway) grew by 9.1% y-o-y in 1Q. Growth was the strongest along the northern region (+18%) due to toll relocations, followed by the central region (+7.7%) and southern (+5.2%). The strong growth in traffic volume was mainly due to the low base effect witnessed in 1Q last year. The management expects growth rates to taper down in 2H as last year's low base effect would have diminished by then. It is guiding for an annual traffic growth of 3%-4%.
A 10% toll hike along the NSE was due in 2008 but was delayed to 2009 and later to an indefinite date. The management indicates that it has not heard from the government if the increase would take place this year. We are of the opinion that a toll hike will not materialise this year. Allowing a toll hike would imply two back-to-back increases as another scheduled hike (+10%) is due in 2011. The government may wish to tackle other subsidies such as gas and electricity first before toll rates.
The main impact from FRS139 is on PLUS' non-cash toll compensation recoverable from the government, which will be offset against future taxation. The present value (PV) of the offset against future taxation is computed and subtracted off the initial book value. The difference between the two is charged to retained earnings, thus reducing earnings. It is important to note that these changes are non-cash items.
As traffic growth rates are expected to normalise in 2H, we cut our traffic volume forecast on the NSE from 5% to 4%. We trim our FY10-FY12 earnings by an average of 2.2%. This reduces our free cash flow to the equity owners-based (FCFE) (9.2% equity cost) valuation to RM4.25. Nonetheless, we retain our buy rating. Yields at the current share price are decent at 5%- 6.6%. ' OSK Research, May 24
This article appeared in The Edge Financial Daily, May 25, 2010.
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