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

PLUS Expressways Bhd
(Aug'' 20, RM4.06)
Maintain outperform at RM3.98 with target price raised to RM4.92: PLUS' annualised 1H10 core net profit was 1% above our forecast and 4% above consensus. We consider the results to be above expectations as 2H should be a stronger period, driven by seasonally strong traffic volume.

In view of this, we raise our FY2010-12 earnings forecasts by about 2%. Our discounted cash flow (DCF) value, however, goes up 5.4% from RM5.18 to RM5.46 as we now use a lower risk premium. We are also raising our FY2010-12 dividend per share (DPS) by 15% as the single-tier 7.5 sen DPS declared for 2Q was above expectations.

In view of the increasingly positive macro outlook and a strengthening of investor preference for defensive stocks, we now value the stock at a 10% discount to its DCF value instead of 25%. This raises our target price from RM3.90 to RM4.92.

We maintain an 'outperform' on the stock due to its defensive qualities and attractive dividend yield of 6.4%. Potential re-rating catalysts include (i) stronger-than-expected traffic volume growth, (ii) continued positive macroeconomic indicators, and (iii) investors' continued preference for defensive stocks. The 1H10 revenue rose 10.8% year-on-year (y-o-y), fuelled by the 9.8% y-o-y traffic volume growth for its main highway, the North-South Expressway (NSE) compared with 14.2% for ELITE, 21.4% for Linkedua, 10.8% for KLBK and 1% from BKSP in India. NSE contributed 84% of the group's toll revenue in 1H10. Earnings before interest, taxes, depreciation, and amortisation (Ebitda) were relatively flat y-o-y while core net profit grew 10.5% y-o-y.

Although traffic volume growth is likely to moderate to single digits in 2H10, traffic volume in absolute terms should pick up pace in 2H as economic conditions continue to improve. We are raising our traffic volume growth assumption from 4% to the guided 5% for FY2010 while keeping our 4% growth assumption for FY2011/12. This raises our FY2010-12 earnings forecasts by about 2%.

However, our DCF value goes up by 5.4% from RM5.18 to RM5.46 as we lower our weighted average cost of capital (WACC) assumption from 12.2% to 10.6% to account for a lower risk premium.

The group declared a 7.5 sen single-tier interim dividend, higher than last year's 6.5 sen and above our projections. As PLUS is targeting a minimum payout of 75% for FY2010, we raise our gross dividend forecast by 15% to 25.6 sen. ' CIMB Research, Aug 20


This article appeared in The Edge Financial Daily, August 23 2010.