THE BUZZ
Kumpulan Perangsang Selangor's (KPS) chairman Raja Idris Raja Kamarudin told the Financial Daily that the company is looking to divest its 20% stake in Sistem Penyuraian Trafik KL Barat Holdings (SPRINT) as part of its plan to reorganize its investment portfolio. Channel checks also reveal that the managements of SPRINT's 2 other major shareholders are also in talks to sell their respective shares.

OUR TAKE
More details. SPRINT is the concession holder for the 26.5km Sprint Highway, a sixlane dual carriageway highway built to reduce traffic congestion in the western enclave of Kuala Lumpur. The 33-year concession for Sprint Highway began in Dec 1998 and will expire in 2031. Its major shareholders are Lingkaran Trans Kota (Litrak) with a 50% stake, Gamuda at 30% and KPS (20%). KPS acquired its 20% stake in 2002 for RM130m.

Takeover by PLUS? The announcement is not exactly new as the market has been speculating that PLUS Expressways, which was privatized by a SPV comprising UEM Group with a 51% stake and EPF with the remaining 49%, is currently in talks with Litrak on a potential takeover offer. Our channel checks indicate that Litrak and Gamuda's managements are currently in talks on the sale of their stakes. However, we understand that talks have been going on for the last 12 months, and nothing concrete has been reached.

Pricing the key determinant. In PLUS' privatization offer, the offer price for its shares, pegged at RM4.60/share, implies a 1-year forward PER of 13.6x, P/BV of 3.3x and EV/EBITDA of 8.2x. Based on Litrak's last closing price of RM4.10, the stock is trading at a premium to PLUS with FY13 valuations of 15.6x PER, 5.0x P/BV, and 9.7x EV/EBITDA. The valuation on Litrak is biased to the upside given that its Sprint operation is loss-making, racking up a RM10m loss for its 50% share. While Litrak's 100%-owned LDP highway has reached traffic maturity with a 2%-3% growth p.a., the Penchala and Kerinchi legs of Sprint are still at a relatively young traffic phase, with
growth in the mid-teens annually. Hence, we believe that any privatization offer would have to be at a decent premium to PLUS, as well as the share's last closing price.

BUY. We do not discount the possibility of SPRINT, or Litrak as a whole, being the target of a takeover offer. Rumors of such moves will provide near-term support to the share price. Hence, we maintain BUY, with our FV unchanged at RM4.46, based on our SOP valuation.

Source: OSK