INVESTMENT HIGHLIGHTS

• 9MFY17 earnings within expectations

• Higher amortisation charges moving forward

• Average weekday traffic almost back to pre-hike levels

• Maintain BUY with unchanged TP of RM6.50

9MFY17 earnings within expectations. Litrak recorded 3QFY17 net profit of RM68m which brings 9MFY17 net profit to RM171m (+44%yoy) which was broadly within our expectations at 70% of our full year forecast as we expect 4QFY17 to be better due to fewer school holidays.

Higher amortisation charges moving forward. The quarter saw an increase in amortisation charges following toll traffic volume that exceeded the initial projections conducted by an independent consultant. This will continue going forward as Litrak began amortising its highway development expenditure (HDE) using traffic volume instead of revenue for FY17.

Average weekday traffic almost back to pre-hike levels. Following the hike in toll rates payable by highway users of between 31-100% that took effect in Oct 2015, Litrak experienced a 6-8% drop in average daily traffic volume. While the average daily volume had yet to fully recover in 3QFY17 (Oct-Dec 2016) due to the school holidays, we expect 4QFY17 (Jan-Mar 2017) average daily traffic volume to gravitate back toward its pre-hike level of 500k for LDP and 250k for Sprint.

Maintain BUY with unchaged TP of RM6.50. Our TP is based on DCF method (WACC: 6.1%, Beta: 0.6). Our BUY call is premised on 1) Healthy free cash flow yield of 9.4% providing further upside to current dividend yield of 5.2% based on 75% payout ratio, 2) Dividend yield of 5.2% represents an attractive 1.16ppt premium over the current 10-year MGS yield and 3) Better than expected recovery in traffic volume for the SPRINT highway could provide upside surprise to earnings.

Source: MIDF Research - 1 Mar 2017