INVESTMENT HIGHLIGHTS

• 12MFY18 Mixed results
• Lower traffic suppressed revenue.
• Expecting more headwinds.
• Nonetheless, we maintain our BUY recommendation at RM5.90 per share

12MFY18 Mixed results. LITRAK’s 12MFY18’s earnings of RM228.5m (+3.7%YoY) registered a mixed results meeting 89.2% and 97.6% of ours and consensus’s full year expectation respectively. The slight improvement in earnings is due to reduction of staff benefits of RM27.3m (-2.15%YoY) and maintenance expenses of RM25.2m (- 16.28m)

Lower traffic suppressed revenue. The divergence in our FY18’s earnings forecast emanate from our earlier estimation on stabilized traffic pattern along Lebuhraya Damansara-Puchong and Sistem Penyuraian Trafik KL Barat (SPRINT). Furthermore, its 12MFY18’s revenue of RM523.8m (-1.95%) was slightly weaker. We have forecasted that weekly traffic would potentially hover around 510,000- 515,000 vehicles. However, the traffic growth is expected to face compression as a result of MRT SBK line and LRT Ampang-Kelana Jaya.

Expecting more headwinds. Moving forward, the tollway concessionaires will face headwinds from the government’s manifesto of abolishing toll. Furthermore, we are expecting the traffic on both LDP and SPRINT highways to face 3.0%-4.0% drop due to the increased ridership of MRT SBK Line and LRT Ampang-Kelana Jaya. Despite that, pending further announcement on; (i) compensation of toll increase deferment scheduled on January, 2016 and (ii) new policy on tollway establishment, we maintain our forecast for FYE18/FYE19.

Maintain BUY. Altogether we maintain our BUY call based on DCF method (WACC: 6.1%, Beta: 0.6) with a TP of RM5.90 per share. Currently, LITRAK is trading at a steep bargain with a PER of 9.9x or 10.1% earnings yield implying an attractive spread of 6.18% against 5-y Malaysian Government Securities yield of 3.92% (30.05.18).

Source: MIDF Research - 31 May 2018