KEY INVESTMENT HIGHLIGHTS

• LITRAK reported a 2QFY21 PAT of RM70.6m (+159%qoq and +2%yoy
• PBT rebounded in 2QFY21 from higher share of profit in SPRINT Group and lower finance costs
• Toll rates on LDP and SPRINT Highway will remain unchanged
• Earnings estimate for FY21E maintained
• Maintain BUY with a revised TP of RM4.76 per share as we breakaway from GoM takeover offer and change our valuation method to DDM

Within expectation. LITRAK reported a 2QFY21 PAT of RM70.6m (+159%qoq and +2%yoy). This was recorded on the back of RM123.6m (+85%yoy and -6%yoy) revenue. Cumulatively, for 1HFY21, its PAT stood at RM97.8 (-29%yoy), a deviation of approximately -4.6% and - 12.7% to ours and consensus expectation. Despite the missed performance, we deemed the result to be broadly within our expectation.

PBT rebounded. PBT for the quarter was reported at RM90.8m (+151%qoq, 0%yoy) as compared to RM36.1m during the previous quarter, attributable to: (i) share of higher profit in SPRINT Group amounting to RM9.7 million in the current quarter, (ii) lower finance cost pursuant to scheduled repayment of bonds in April 2020. Cumulatively, for 1HFY21, PBT decreased by -29%yoy as a result of lower revenue. However, the decrease of PBT was moderated by lower amortisation of highway development expenditure arising from lower traffic volume, lower maintenance expense, and lower finance cost throughout the 1HFY21.

Toll rates outlook. Back in January 2020, the Government (GoM) had announced the continuation of the freeze on toll hike for CY20. For LITRAK, toll rates on LDP and SPRINT Highway will remain unchanged and compensation payable by the GoM will be determined accordingly as stipulated in the Concession Agreements. To note, there will no more scheduled toll increase for LDP and SPRINT Highway – Penchala Link until the end of concession. However, there will still be one last scheduled rate increase for SPRINT Highway’s Damansara Link and Kerinchi Link in 2022.

Long run outlook. Moving forward, the introduction of the unlimited monthly pass called My100 and My50 would encourage the use of public transportation. We see this as 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 with the possibility of KVMRT Line 3 to be reinstated will also exacerbate the risk. Specifically for SPRINT, the Damansara Link runs parallel to the stretch of KVMRT Line 1 from Semantan Station to Taman Tun Dr. Ismail station. We opine that the impact towards traffic volume will be more pronounced with the continuous improvement in public amenities and connectivity.

Earnings estimates. At this juncture, we are maintaining our earnings estimate for FY21E

Target price. Despite maintainng our earnings forecast, we revise our TP to RM4.76 per share from RM5.08 per share previously. This is because of the change in our valuation method to Dividend Discount Model, with a discount rate of 5.9%. Previously, our TP is based on the combined price tag of RM2.75b for both highway concessions (SPRINT and LDP) with slight discount premised on government takeover. We come to understand the proposed transaction has past due its stipulated timeline amid government transition and threat of Covid-19. Moving forward, this will have no bearing on the group’s future performance.

Maintain BUY. We maintain our BUY call as LITRAK is currently trading at undemanding valuation. At this price level LITRAK is trading at one standard deviation below its average 5 Years PER at 8.5x vs 10.8x. Furthermore, we continue to like the company for its attractive dividend yield. Based on its historical record, LITRAK dividend yield has consistently been above 5%, which is an attractive proposition for investors in general. Moving forward, we believe the group will rebound as the pandemic subsides which we hope to be as soon as 1QCY21.

Source: MIDF Research - 26 Nov 2020