Stock Name: PLUS
Company Name: PLUS EXPRESSWAYS BHD
Research House: MAYBANK
Plus Expressways Bhd
(May 6, RM3.38)
Maintain buy at RM3.33 with unchanged target price of RM4.20: First quarter of financial year ending Dec 31, 2010 (1QFY2010) traffic at PLUS' major expressways has shot past our expectations.
We raise traffic forecasts, impute Financial Reporting Standard 139 (FRS 139) charges, and update our earnings model after the 2009 annual report release - all in, a small 5% downgrade in our FY2010 net profit forecast. Our discounted-cash-flow derived target price is however, unchanged. We continue to like PLUS for its dividend yield and long-term regional expansion offerings.
Traffic growth at North-South Expressway (NSE), North Klang Valley Expressway, Federal Highway Route 2 and Seremban-Port Dickson Highway stayed strong at a combined 9.1% year-on-year (y-o-y) in the first quarter (1QFY2010) above our 2% growth forecast for FY2010. Quarter-on-quarter (q-o-q), traffic contracted 3.9% but this is seasonal as 4Q traffic has always been the strongest due to the long school holidays and year-end festive travelling.
We expect 1QFY2010 traffic to sustain and peak in 4QFY2010. We raise our traffic growth forecast for 2010 to 5% from 2%. This assumes a modest 1% q-o-q growth in 2Q to 3Q FY2010, and 3% in 4QFY2010.
FRS 139, effective this year, requires PLUS to fair value the amount of toll compensation due from the government (RM2.49 billion at end-2009) through a cash flow valuation. This will result in a one-off adjustment to the retained earnings this year.
We understand that the negative income statement impact is minimal for FY2010; we have imputed RM30 million in our revised earnings. FRS 139 should not impair PLUS' ability to pay dividends.
PLUS has yet to hear from the government on the latter's plan for a country-wide restructuring of tolled roads. A study on the domestic toll rate structure was commissioned last year which should include toll revisions due this year, affecting PLUS' NSE. The NSE was due for a 10% toll hike in early-2008 but this has been deferred by two years. It is also due for a 10% toll hike in early-2011.
Meanwhile, cash compensation from the government remains forthcoming. We continue to expect no major impact on valuations under any new toll structure. - Maybank IB Research, May 6
This article appeared in The Edge Financial Daily, May 7, 2010.
Company Name: PLUS EXPRESSWAYS BHD
Research House: MAYBANK
Plus Expressways Bhd
(May 6, RM3.38)
Maintain buy at RM3.33 with unchanged target price of RM4.20: First quarter of financial year ending Dec 31, 2010 (1QFY2010) traffic at PLUS' major expressways has shot past our expectations.
We raise traffic forecasts, impute Financial Reporting Standard 139 (FRS 139) charges, and update our earnings model after the 2009 annual report release - all in, a small 5% downgrade in our FY2010 net profit forecast. Our discounted-cash-flow derived target price is however, unchanged. We continue to like PLUS for its dividend yield and long-term regional expansion offerings.
Traffic growth at North-South Expressway (NSE), North Klang Valley Expressway, Federal Highway Route 2 and Seremban-Port Dickson Highway stayed strong at a combined 9.1% year-on-year (y-o-y) in the first quarter (1QFY2010) above our 2% growth forecast for FY2010. Quarter-on-quarter (q-o-q), traffic contracted 3.9% but this is seasonal as 4Q traffic has always been the strongest due to the long school holidays and year-end festive travelling.
We expect 1QFY2010 traffic to sustain and peak in 4QFY2010. We raise our traffic growth forecast for 2010 to 5% from 2%. This assumes a modest 1% q-o-q growth in 2Q to 3Q FY2010, and 3% in 4QFY2010.
FRS 139, effective this year, requires PLUS to fair value the amount of toll compensation due from the government (RM2.49 billion at end-2009) through a cash flow valuation. This will result in a one-off adjustment to the retained earnings this year.
We understand that the negative income statement impact is minimal for FY2010; we have imputed RM30 million in our revised earnings. FRS 139 should not impair PLUS' ability to pay dividends.
PLUS has yet to hear from the government on the latter's plan for a country-wide restructuring of tolled roads. A study on the domestic toll rate structure was commissioned last year which should include toll revisions due this year, affecting PLUS' NSE. The NSE was due for a 10% toll hike in early-2008 but this has been deferred by two years. It is also due for a 10% toll hike in early-2011.
Meanwhile, cash compensation from the government remains forthcoming. We continue to expect no major impact on valuations under any new toll structure. - Maybank IB Research, May 6
This article appeared in The Edge Financial Daily, May 7, 2010.
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