Litrak posted 9MFY12 earnings of RM102.1m (+24.6% y-o-y)which was above our expectations by meeting 80.7% of our full-year estimates,thanks mainly to lowerthan-expected losses at SPRINT. It declared a secondinterim DPS of 7.0 sen with its  9MFY12DPS now standing at 17.0 sen. Going forward, we expect Litrak's earnings to befairly resilient with the next toll hike for its Damansara link scheduled onlyin 2015. In view of the media speculation on a potential takeover offer by PLUSExpressways, we are removing our 10% discount attached to our previousvaluation and our SOP-derived FV now stands at RM4.72.

Above expectations.  Litrak's 9MFY12 revenue came in at RM269.9m(+14.8% y-o-y). YTD operating profit increased 15.0% y-o-y  toRM214.5m, with a marginal 20bps improvement in its EBIT margin to 79.6%. All inall, the core earnings of RM102.1m (+24.6% y-o-y) came in slightly above ourexpectations at 80.7% of our full-year estimates owing to lower losses incurredby its 50%-owned SPRINT. From a quarterly perspective, 3QFY12 results generallymarked some decent y-o-y improvement on the recognition of higher toll ratesbut the numbers were weaker sequentially owing to seasonal factors.

Decent yield. Thecompany took the opportunity to declare a second interim DPS of 7.0 sen withits 9MFY12 DPS now standing at 17.0 sen. This implies a healthy payout ratio of84.1% (vis-a-vis our previous assumption of 70%) based on its 9MFY12 earnings,which translates into a decent dividend yield of 4.2% YTD. We now expect its payoutratio to hover around 75%-80% (from 65%-70% previously)  as a result of its better cash flow management,and this implies an annualized DPS of 20-24 sen over the next three years. 

No hike expected.With the widely anticipated General Election likely to take place this year,we  do not foresee any toll hikes in thenear term with the  Government  likely to continue subsidizing motorists at RM0.50 on LDP toll rates. This ispositive for Litrak as it still receives the agreed rate of RM2.10, without suffering  a decline in traffic volumes associated witha toll hike.  The next scheduled tollhike takes place in 2015 for its Damansara link, which has almost reached itssaturation point with an average daily traffic of approximately 60k.

BUY.  We revisited our model and lowered our losses assumption on Litrak's 50%-ownedSPRINT operations given the encouraging progress made YTD. With that, our EPSforecasts for the next 3 years are revised upward by 6%-7%. In view of thecurrent media speculation on a potential takeover offer by PLUS Expressways, weare now removing our 10% discount attached to our previous valuation, inanticipation of more news flow in the coming months which could give a boost tothe share price. Hence, our SOP-derived FV now stands at RM4.72. Maintain BUY.

Source: OSK188