INVESTMENT HIGHLIGHTS

• FY19 results within expectations

• Lower traffic volume plying the LDP due to additional public holiday post- GE14

• Lower finance costs and scheduled toll hike for Penchala Link-Mont Kira lifts earnings slightly

• Risk from a potential takeover by the government still presides

• Maintain NEUTRAL with unchanged TP of RM4.08 per share

FY19 met expectations. Litrak reported a 4QFY19 net profit of RM59.1m (+7.3%yoy) which contributed towards an FY19 net profit of RM236.1m (+2.7%yoy). The results met our estimates, accounting for 99.5% and 100.4%of our and consensus’ full year forecasts, respectively.

Public holiday post GE14 impacted weekday traffic. The revenue of RM516.0m in FY19 was -1.5%yoy lower due to the lower traffic volume plying the LDP. Note that there was a two-day public holiday following the 14th General Election in 1QFY19.

SPRINT returns back into the black. Nevertheless, the drop in revenue was outweighed by the lower amortisation of highway development expenditure for FY19. Since FY17, LDP and Sprint amortises its highway development expenditure (HDE) using forecasted traffic volume instead of revenue. The accounting practice is common for infrastructure assets. Earnings were lifted by the -19.1%yoy drop in finance costs during the period under review pursuant to repayment of borrowings in April 2018. In addition, the share of profit from SPRINT worth RM1.5m underpinned earnings growth in FY19, mainly attributable to the scheduled toll hike for Penchala Link-Mont Kiara effective 1 January 2019.

Outlook. Moving forward, the introduction of the unlimited monthly pass called My100 and My50 would encourage the use of public transportation, posing a downside risk to traffic volume. Nevertheless, we believe that that tollable traffic volume can be sustained by the influx of last mile delivery players in the wake of the e-commerce activities. With online mega sales being held especially during every festive season, last mile delivery players will be faced by higher demand to deliver items especially in the Klang Valley area which has a high possibility of using the Sistem Penyuraian Trafik KL Barat (SPRINT) and Lebuhraya Damansara-Puchong (LDP).

Source: MIDF Research - 31 May 2019