Stock Name: LITRAK
Company Name: LINGKARAN TRANS KOTA HOLDINGS
Research House: MIDF
Lingkaran Trans Kota Holdings Bhd
(May 31, RM3.75)
Downgrade to neutral at RM3.72 with target price of RM4.07: Litrak's FY11 net profit of RM98.4 million was below expectations, accounting for only 70.6% and 79.2% of our and'' consensus numbers. The big variance to the forecast was due to our assumption of a scheduled toll rate hike in 2011, which did not materialise. However, FY11 earnings still grew by 14.5% on higher revenue and other income. ''
Net profit dropped 41.2% quarter-on-quarter (q-o-q) to RM15.5 million, caused by a higher share of losses at Sprint, caused mainly by the higher amortisation of highway development expenditure based on the latest toll revenue projections prepared by independent consultants concluded at the end of 4QFY11, hence the entire adjustment has been accounted for in the quarter. ''
All is not lost with Litrak. Revenue was boosted in 4QFY11 to RM83.6 million (+5.1% year-on-year; +6.2% q-o-q), due to holiday traffic as well as the accruals made (based on the terms of the concession agreement) on the scheduled toll hike in January 2011 that the government decided to defer until further notice.
However, FY11 dividend per share was similar to FY10's at 17 sen, a yield of 4.6%. Based on our more than RM250 million'' free cash flow projection for the LDP in FY12, we expect Litrak to raise its FY12 DPS to 19.1 sen (5.14% yield).
We expect traffic loss in FY12 due to fuel price increases and toll rate hike in 2011. However, we do not expect traffic to'' decrease drastically as the LDP is an important commuter route, especially with the lack of'' efficient public transport. We also believe that the new toll rates should moderate any impact from traffic decrease.
Higher fuel prices, such as the recent 20 sen price increase for RON97 to RM2.90 per litre and possible increase for RON95'' (currently'' at RM1.90 per litre), may cause commuters to find alternative transport causing a 'loss' in traffic.'' ''
We are trimming our earnings forecast for FY12 by 30% to reflect escalating fuel prices as well as'' traffic leakage to the'' Duta-Ulu'' Klang'' Expressway (Duke). We also introduce our FY13 earnings forecast of RM127.8 million, assuming a 4%'' increase in traffic, underpinned by new housing developments in Petaling Jaya.
This is based on the dividend discount model, with a weighted average cost of capital of 6.33% and a risk free rate of 4%. We expect investors' interest in Litrak to be intact for its FY12 dividend yield potential of 5.14%, providing a 9.38% upside for its share price.
Litrak is a good defensive stock given that the LDP still enjoys support from its catchment area of'' Puchong, Kelana Jaya, and Bandar Sri Damansara. However, as the upside is capped in a rising market, we are downgrading our recommendation to 'neutral'. ' MIDF Research, May 31
This article appeared in The Edge Financial Daily, June 1, 2011.
Company Name: LINGKARAN TRANS KOTA HOLDINGS
Research House: MIDF
Lingkaran Trans Kota Holdings Bhd
(May 31, RM3.75)
Downgrade to neutral at RM3.72 with target price of RM4.07: Litrak's FY11 net profit of RM98.4 million was below expectations, accounting for only 70.6% and 79.2% of our and'' consensus numbers. The big variance to the forecast was due to our assumption of a scheduled toll rate hike in 2011, which did not materialise. However, FY11 earnings still grew by 14.5% on higher revenue and other income. ''
Net profit dropped 41.2% quarter-on-quarter (q-o-q) to RM15.5 million, caused by a higher share of losses at Sprint, caused mainly by the higher amortisation of highway development expenditure based on the latest toll revenue projections prepared by independent consultants concluded at the end of 4QFY11, hence the entire adjustment has been accounted for in the quarter. ''
All is not lost with Litrak. Revenue was boosted in 4QFY11 to RM83.6 million (+5.1% year-on-year; +6.2% q-o-q), due to holiday traffic as well as the accruals made (based on the terms of the concession agreement) on the scheduled toll hike in January 2011 that the government decided to defer until further notice.
However, FY11 dividend per share was similar to FY10's at 17 sen, a yield of 4.6%. Based on our more than RM250 million'' free cash flow projection for the LDP in FY12, we expect Litrak to raise its FY12 DPS to 19.1 sen (5.14% yield).
We expect traffic loss in FY12 due to fuel price increases and toll rate hike in 2011. However, we do not expect traffic to'' decrease drastically as the LDP is an important commuter route, especially with the lack of'' efficient public transport. We also believe that the new toll rates should moderate any impact from traffic decrease.
Higher fuel prices, such as the recent 20 sen price increase for RON97 to RM2.90 per litre and possible increase for RON95'' (currently'' at RM1.90 per litre), may cause commuters to find alternative transport causing a 'loss' in traffic.'' ''
We are trimming our earnings forecast for FY12 by 30% to reflect escalating fuel prices as well as'' traffic leakage to the'' Duta-Ulu'' Klang'' Expressway (Duke). We also introduce our FY13 earnings forecast of RM127.8 million, assuming a 4%'' increase in traffic, underpinned by new housing developments in Petaling Jaya.
This is based on the dividend discount model, with a weighted average cost of capital of 6.33% and a risk free rate of 4%. We expect investors' interest in Litrak to be intact for its FY12 dividend yield potential of 5.14%, providing a 9.38% upside for its share price.
Litrak is a good defensive stock given that the LDP still enjoys support from its catchment area of'' Puchong, Kelana Jaya, and Bandar Sri Damansara. However, as the upside is capped in a rising market, we are downgrading our recommendation to 'neutral'. ' MIDF Research, May 31
This article appeared in The Edge Financial Daily, June 1, 2011.
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