Litrak - Turning heads HOLD

Stock Name: LITRAK
Company Name: LINGKARAN TRANS KOTA HOLDINGS

Research House: AMMB

Price Call: BUY

Target Price: 3.90

We maintain our BUY recommendation on Lingkaran Trans KotaHoldings (Litrak), with a higher fair value of RM3.90 (previously:RM3.77/share) ' pegged to an unchanged 15% discount of its revised DCF value(WACC: LDP -8.1%, SPRINT ' 8.6%).

The higher fair value encapsulates an 11% upgrade in FY12F netprofit forecast (FY13F: +9%, FY14F: +5%) following a stronger-than-expectedmargin trajectory for 9MFY11.

Litrak's 9MFY11 results came in ahead of expectations, accountingfor 80%-85% of both consensus and our full-year estimates. The main positivevariance, in our view, stemmed from better-than-expected EBIT margins (9MFY12:77% vs 75% a year earlier).

During the period, the group's bottomline surged 23% YoY arisingfrom the full-year impact of a scheduled toll rate revision from 1 January2011.

Sequentially, its earnings fell 2% QoQ to RM32mil. This was largelydue to a marginal increase in operating expenses incurred during the quarter.

Litrak declared a second interim dividend/share (DPS) of 7 senin 3QFY12, taking 9MFY12 DPS to 17 sen ' matching the payout last year. We haveassumed a total DPS of 18 sen for FY12, translating into a decent yield of 4%.

Litrak has been in the news recently, where the toll concessionaireis reportedly a take-over target of  PLUSExpressways along with SILK Holdings. 

But, we are unsure if Gamuda ' Litrak's major shareholder witha 45% stake ' would be willing to part ways with the urban toll operator. Thisbeing the case, Litrak has been a steady generator of Gamuda's cash flows overthe years.

Moreover, the continued uncertainties over toll rate hikesand associated risk of back-ended cash flows (i.e. extension of concessionperiod rather than outright cash payment as compensation for delays in tollhikes) is another drag.

Our HOLD rating is premised on its status as a core holding forinvestors seeking exposure to the toll concessions with the de-listing of PLUSand MTD Capital. This is backed by a decent yield offering of 4%-5%.

Source: AmeSecurities