Stock Name: LITRAK
Company Name: LINGKARAN TRANS KOTA HOLDINGS
Research House: MAYBANK
Lingkaran Trans Kota Holdings Bhd (Litrak)
(June 15, RM3.05)
Maintain buy at RM3.05 with target price of RM3.65: FY11 will see the implementation of FRS139 which may be positive to reserves but mildly negative to the P&L while FY12 will see IFRIC 12 (service concessions agreement) (IC12) coming into play, but a decision on the accounting treatment has yet to be made.
Cash flow projections nonetheless are unaffected. We continue to rate Litrak a buy for its rising dividend yield potential. No change to our discounted cash flow-derived target price of RM3.65 (9.2% cost of equity).
Litrak will implement FRS139 this year. At the group level, this new rule affects two financial instruments: (i) a RM98 million government loan, and (ii) a RM1.445 billion Sukuk IMTN.
For (i), we estimate a positive RM20 million (four sen per share) impact to FY11's opening reserves which will be gradually reversed out into the P&L until the loan is repaid by FY15.
For (ii), amortisation of the Sukuk's nominal and fair value differences will be based on the effective interest method, resulting in a gradual rise in the charge to the P&L versus a constant charge now. This may have an estimated positive RM1 million per annum P&L impact initially.
IC12 will be effective July 2010, affecting Litrak from FY12. Litrak will be affected at two fronts: (i) heavy repairs will be directly charged out and recognised as a long-term liability although not incurred (versus capitalisation and yearly amortisation now), and (ii) amortisation of highway development expenditure (HDE), now under the revenue method, may shift to straight line or traffic volume-based.
The transitional treatment for heavy repairs will be a one-off negative to the reserves for the balance in the books (RM45 million or nine sen per share at end-FY10). As for HDE amortisation, the policy has yet to be finalised.
We lower our FY11-12 net profit forecasts by 6%-11% for FRS139 impact, and after adjusting for a five-year amortisation of RM150 million government compensation for the LDP highway which will complete in end-CY10 (FY11) versus our previous forecast of early-FY12.
Our FY12 forecast has yet to incorporate IC12 which is likely to be negative o earnings considering the charge out in heavy repairs and potentially higher HDE amortisation. These are mainly P&L adjustments with projected cash flows remaining very much unchanged. ' Maybank IB Research, June 15
This article appeared in The Edge Financial Daily, June 16, 2010.
Company Name: LINGKARAN TRANS KOTA HOLDINGS
Research House: MAYBANK
Lingkaran Trans Kota Holdings Bhd (Litrak)
(June 15, RM3.05)
Maintain buy at RM3.05 with target price of RM3.65: FY11 will see the implementation of FRS139 which may be positive to reserves but mildly negative to the P&L while FY12 will see IFRIC 12 (service concessions agreement) (IC12) coming into play, but a decision on the accounting treatment has yet to be made.
Cash flow projections nonetheless are unaffected. We continue to rate Litrak a buy for its rising dividend yield potential. No change to our discounted cash flow-derived target price of RM3.65 (9.2% cost of equity).
Litrak will implement FRS139 this year. At the group level, this new rule affects two financial instruments: (i) a RM98 million government loan, and (ii) a RM1.445 billion Sukuk IMTN.
For (i), we estimate a positive RM20 million (four sen per share) impact to FY11's opening reserves which will be gradually reversed out into the P&L until the loan is repaid by FY15.
For (ii), amortisation of the Sukuk's nominal and fair value differences will be based on the effective interest method, resulting in a gradual rise in the charge to the P&L versus a constant charge now. This may have an estimated positive RM1 million per annum P&L impact initially.
IC12 will be effective July 2010, affecting Litrak from FY12. Litrak will be affected at two fronts: (i) heavy repairs will be directly charged out and recognised as a long-term liability although not incurred (versus capitalisation and yearly amortisation now), and (ii) amortisation of highway development expenditure (HDE), now under the revenue method, may shift to straight line or traffic volume-based.
The transitional treatment for heavy repairs will be a one-off negative to the reserves for the balance in the books (RM45 million or nine sen per share at end-FY10). As for HDE amortisation, the policy has yet to be finalised.
We lower our FY11-12 net profit forecasts by 6%-11% for FRS139 impact, and after adjusting for a five-year amortisation of RM150 million government compensation for the LDP highway which will complete in end-CY10 (FY11) versus our previous forecast of early-FY12.
Our FY12 forecast has yet to incorporate IC12 which is likely to be negative o earnings considering the charge out in heavy repairs and potentially higher HDE amortisation. These are mainly P&L adjustments with projected cash flows remaining very much unchanged. ' Maybank IB Research, June 15
This article appeared in The Edge Financial Daily, June 16, 2010.
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