KEY INVESTMENT HIGHLIGHTS

• 1HFY20 results within expectations

• Higher traffic volume plying the LDP due to low base effect. There was additional public holiday post-GE14 and toll discounts in the preceding year.

• Lower finance costs and scheduled toll hike for Penchala Link-Mont Kiara underpinned earnings growth

• Earnings estimates unchanged

• Maintain Trading BUY with revised TP of RM5.08 per share

Growth in PBT continues. Litrak reported a 2QFY20 net profit of RM69.0m (+13.9%yoy). This brings its cumulative 1HFY20 net profit to RM136.7m (+18.1%yoy) which was in line with expectations, accounting for 55.5% and 53.1% of our and consensus’ full year forecasts, respectively.

Low base effect for tollable traffic volume. The revenue of RM260.0m in 1HFY20 was +0.6%yoy higher mainly due to the higher traffic volume plying the LDP. The higher traffic volume was due to a low base effect. There was a two-day public holiday following the 14th

General Election (GE14) in May 2018 combined with toll discounts worth 10% and 50% for Class 1 users on GE14 and all classes before Hari Raya Aidilfitri last year respectively.

SPRINT returns back into the green. Cost management played a significant role during the period as evident by maintenance expenses dropping by -45.5%yoy. Earnings in 1HFY20 were also lifted by the - 25.5%yoy drop in finance costs pursuant to repayment of borrowings in April 2019. In addition, the share of profit from SPRINT worth RM10.0m versus a share of loss of –RM1.6m a year ago underpinned earnings growth in 1HFY20, mainly attributable to the scheduled toll hike for Penchala Link-Mont Kiara Toll Plaza effective 1 January 2019 (which is being compensated by the government in lieu of the toll rate hike freeze).

Long run 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 on traffic volume. On a longer term, the completion of KVMRT Line 2 in 2022 which connects Sungai Buloh, Serdang and Putrajaya combined with the possibility of KVMRT Line 3 to be reinstated will exacerbate the risk on tollable traffic volume. Specifically for SPRINT, the Damansara Link runs parallel to the stretch of KVMRT Line 1 from Semantan Station to Taman Tun Dr. Ismail station and we opine that the impact towards traffic volume will be more pronounced with the continuous improvement in public amenities and connectivity. Of the four stations competing directly with Damansara Link, Phileo Damansara and Pusat Damansara Station are equipped with park and ride facilities with over 500 car parking bays.

Source: MIDF Research - 29 Nov 2019