Review

• Litrak’s 9MFY17 net earnings of RM171.4mn came in below expectations, accounting for 68.4% and 68.2% of our and consensus’ full-year estimates. The variance was due mainly to higher-thanexpected amortization costs.

• A second interim dividend of 15sen/share was declared, bringing the YTD dividend to 25sen/share for FY17, matching the quantum declared in the previous financial year.

• YoY, 9MFY17 net profit surged 43.8% to RM171.4mn, in line with a 41.6% jump in revenue to RM403.1mn. The significant improvements in both the top line and bottom line were due to scheduled toll rate increase for LDP from RM2.1 to RM3.1, which was effected in January 2016.

• QoQ, 3QFY17 net profit was 12.9% lower despite the quarterly revenue was 1.7% higher at RM134.7mn. 3QY17 net profit was negatively impacted by higher amortization which jumped 43.1% QoQ.

Impact

• We lower FY17/FY18/FY19 earnings forecasts by 6.9%/4.8%/3.8% respectively to factor in higher amortization for highway development expenditure.

Outlook

• While the LRT extensions have started operation end-June 2016 and stage 1 of MRT line 1 will commence operation on 16 December 2016, we do not see these as significant threats to the traffic volumes of LDP and SPRINT in near term until a well-integrated public transport system is in place.

• In our opinion, the current first mile and last mile transport connections, or rather the lack of them, are still inadequate to result in meaningful switch in mode of transport from private vehicles to public transports. Furthermore, we think urban migration would be sufficient to cushion the reduction the tollable traffic.

Valuation

• No change to our discounted FCF valuation of RM5.58, based on unchanged required rate of return of 5.3%. Maintain our SELL call on LITRAK.

Source: TA Research - 1 Mar 2017