Results Review

• Litrak’s 1QFY20 net profit of RM67.8mn came in above expectations, accounting for 29.3% and 27.5% of ours and consensus’ full-year estimate respectively. The variance was mainly due to higher-than-expected contribution from its associate and lower-than-expected finance cost.

• A first interim dividend of 10sen/share was declared, matching the same amount last year.

• Despite the rollout of Rapid KL’s My100 and My50 unlimited travel pass for rail, BRT, Rapid KL buses in Klang Valley, the traffic plying LDP remained resilient. 1QFY20 revenue was 2.1% and 1.9% higher YoY and QoQ respectively.

• YoY, 1QFY20 net profit was 22.7% higher at RM67.8mn, boosted by i) higher traffic volume; ii) lower maintenance expenses; iii) lower finance cost following partial repayments of bonds; and iv) higher contribution from associate, SPRINT, following an upward revision in contractual toll rate for Penchala Link effective 1 January 2019.

• QoQ, net profit for the reporting quarter was 14.6% higher as a result of i) higher revenue; ii) lower maintenance expenses; iii) lower finance cost; and iv) higher contribution from associate, SPRINT.

Impact

• Following the stronger-than-expected results, we raise FY20/FY21/FY22 earnings forecasts by 14.5%/14.0%/13.5% respectively, after adjusting finance cost, contribution from associate and taxation.

Outlook

• In June 2019, The Ministry of Finance (MoF) offered to acquire LDP, SPRINT, KESAS and SMART. The anticipated equity value of LITRAK’s 100% stake in LDP and 50% stake in SPRINT comes to RM2.75bn, or about RM5.207 per LITRAK share. The offer is subject to the approval of Cabinet of Malaysia, due diligence and shareholders’ approvals. Should the takeover materialise, we expect LITRAK to distribute majority of the proceeds to shareholders of LITRAK.

Valuation

• Maintain our target price at RM5.21, matching the offer price by MoF. With a reduced upside following a slightly more than 10% increase in share price after the announcement of the takeover offer, we downgrade LITRAK to Hold.

Source: TA Research - 29 Aug 2019