In 1QFY117, Litrak registered a net profit of RM61.1m (+11.1% QoQ, +40.5% YoY) which came in within our and consensus expectations. The first quarter constituted 25% and 26% of our and consensus full year net estimates. An interim dividend of 10 sen was announced during the quarter. With the stock moved above our estimated value, we downgrade Litrak from Neutral to Underperform with TP nudged slightly higher to RM4.80 (from RM4.70) after adjusting our SOTP valuations.

Higher revenue due to LDP toll hike. In 1QFY117, Litrak’s revenue was higher at RM136.0m (+3.3% QoQ, +41.4 YoY) primarily due to the scheduled toll increase for LDP on Jan 1, 2016. As mentioned earlier, the Government has decided to defer the toll hike until further notice. However, we believe it will be paid every six months like previously, and hence will make the necessary accruals based on the terms on the concession agreement which will allow the Group to receive compensation for the loss of revenue. Correspondingly, PBT profit was higher due to higher traffic volume and lower maintenance costs.

Downgrade to Underperform (from Neutral). Our TP was adjusted to RM4.80 (from RM4.70) after we updated our balance sheet items. We believe Litrak is fully valued for now. That said, we still like the company for its stable earnings trajectory, strong free cash flow and growth certainty from rate hikes bound by the concession agreement.

Source: PublicInvest Research - 1 Sep 2016