July 19, 2010

PLUS - MIDF Research positive on toll sector,no adverse impact from fuel price hike

Stock Name: PLUS
Company Name: PLUS EXPRESSWAYS BHD
Research House: MIDF

Toll sector
Maintain positive
: The government announced last Thursday that it is reducing the subsidy on fuel from July 16. The price of RON95 petrol will be increased by five sen to RM1.85 and retail diesel will be increased by five sen to RM1.75. RON97 petrol will no longer be subsidised. It will be subjected to a managed float with a monthly automatic pricing mechanism. For now, the price of RON97 will increase by five sen to RM2.10. Total saving for the government from the fuel price subsidy cuts is estimated to be RM495.8 million.

We are not surprised by the announcement of the fuel price increase as we anticipated such a move'' after the scrapping of the two-tier fuel subsidy system.'' Recall that the government was supposed to introduce the two-tier system on'' May 1, under which the fuel subsidy was to be based on engine capacity. We had expected earlier that the fuel price would be increased by 10 sen probably during the budget in August.

We expect the fuel price to rise again, most probably in 1H2011, by another five sen. Currently, the price of RON95 without subsidy is RM1.97, which'' means'' that'' the government is subsidising 12 sen per litre. However, we expect that the subsidy will not be rationalised dramatically as the government has yet to finalise a'' targeted subsidy scheme aimed at providing a safety net for the most deserving. ''

For comparative'' purposes, we exclude ELITE, LINKEDUA and the Butterworth-Kulim Expressway (KLBK) as these highways were only acquired in December 2007, March 2008 for KLBK, and focus on the traffic growth of PLUS' North-South Highway, NKVE, Federal Highway route 2 and the Seremban-Port Dickson highway'' (collectively as 'main'' highway').

The traffic growth for PLUS' main highway has consistently declined in the month following a fuel price increase, with the largest decline being 4.2% year-on-year (y-o-y) in August 2005. This is probably due to the 'shock' to users as it was the first significant price increase.

As for LITRAK, we look at the traffic growth in the LDP as it is now considered a mature highway, while SPRINT is still a growth highway. That is why in FY2006, traffic growth grew 8.3% as the LDP was still in its 'ramp-up' period. However, traffic only grew 2.9% y-o-y in FY2009 when there was an initial fuel price hike of 78 sen to RM2.70. We believe that FY2009 traffic growth would be lower if not for the seven fuel price revisions, when fuel price finally settled at RM1.80 per litre by December 2008. ''

While a fuel price increase has always produced a knee-jerk reaction from toll users, as can be seen historically in PLUS and LITRAK traffic growths, we do not expect that the current increase would have a significant impact on traffic on both highways. This is probably due to the fact that the current fuel price increase has been expected and the quantum of the increase is not significant enough'' to change travel habits. Therefore, we are maintaining our revenue forecast for both PLUS and LITRAK at RM3.31 billion and RM345.6 million respectively.

With the latest fuel price hike not expected to have an adverse impact on the traffic growth of the highway, we maintain our positive call on the sector. We believe that any drop in traffic will not be as severe as that in the past. We retain our buy calls on PLUS (TP:RM3.85) and LITRAK (TP:RM3.60). ' MIDF Research, July 16


This article appeared in The Edge Financial Daily, July 19, 2010.


No comments:

Post a Comment