INVESTMENT HIGHLIGHTS

• 3MFY18 met expectations

• Starting to feel the effects of LRT2 and MRT1

• Higher amortisation and lower traffic still plaguing Sprint

• Maintain NEUTRAL with unchanged TP of RM5.95

3MFY18 met expectations. Litrak reported 1QFY18 net profit of RM55.1m (-9.7%yoy, +4.6%qoq) which met both ours and consensus estimates, accounting for 24% and 23% of respective full year forecasts. An interim dividend of 15 sen was declared (1QFY17: 10 sen declared), which was within our expectation.

Starting to feel the effects of LRT2 and MRT1... Average weekday tollable traffic on the LDP fell -3%yoy in FY17 compared to FY16, representing a drop of 15k daily commuters ploughing the highway. Sprint highway saw an even larger reduction, falling 21k daily traffic or a -8.5%yoy decline. Explaining the drop were 1) higher average toll rates following the toll hike and 2) a switch to public rail transport, i.e. LRT2 and MRT1.

…that continued on in 1QFY18. We believe this could be the same reason for the drop in average daily tollable traffic in 1QFY18, considering the LRT2 extension and MRT1 only commenced operations in June and Dec 2016 respectively.

Higher amortisation and lower traffic still plaguing Sprint.

Associate company, Sprint highway saw an uptick in its amortisation of its highway development expenditure (HDE) following a higher traffic volume forecasts (due to the unit of production method). Coupled with a drop in traffic volumes, Sprint contributed a RM0.9m loss to Litrak (1QFY17: RM0.3 share of profit).

Maintain NEUTRAL with TP of RM5.95. We make no changes to our earnings forecasts. Our TP is based on DCF method (WACC: 6.1%, Beta: 0.6) due to the company’s ability to generate steady cash flows. Our call on Litrak remains NEUTRAL, due to the lack of rerating catalysts. We believe LITRAK is a solid defensive play, offering decent dividends yield of 4.6% for FY18 which is underpinned by free cash flow yield of 12%.

Source: MIDF Research - 30 Aug 2017