If the politicians put toll discount/abolishment again in their manifesto, then you might have to relive the nightmare of 33.5% decrease in share price (dropped from 5.65 to 3.76)
Hi all. I suppose very naive question here. What happen to any highway company once concessions end. While litrak is fundamentally sound, what do u guys see in 5-10y time? I am looking for long term investment.
LDP concession ends in 2030 and SPRINT shortly after that. Rightfully they should look for and inject new projects so that the listed status doesn't go wasted. When asked during AGM the management said there was no plan yet. Perhaps they just wait and take orders from their largest shareholder Gamuda.
So, once they are debt free in couple years, they need to come out with another infrastructure plan with new bond and new debt? While it would be nice to get 8-10% dividend per year, the capital invested need to grow as well, albeit slowly. Is there any highway company that actually done with the concession in malaysia? Anybody know what happen to them. Also can anyone top LDP in terms of traffic in kl?
What happen to earning ratio once the concession ends? Does that means the company share price would be around half the price? Still having hardtime figuring out the business with finite mode of production.
Yes, the concession still have about another decade to go. There is also the possibility of new projects before concession ends.
However even an investor with a short holding period of say 3 years still can't ignore the finite concession period. The institutional investors value the company based on discounted cash flow. They will not pay a premium for retail investors to exit 3 years from now by assuming company dividends can grow into perpetuity.
@Zackmeiser, my gut feeling is one should value based on a dividend discount model which runs until concession ends + liquidation value + a premium for the listed status which offers the possibility of new businesses/ projects.
@observatory taking conservative 10c per quarter which translate roughly 10% dividend year with possibly 15% in the final years once the bond fully repaid and liquidation of net cash company. I reckon if we invest now ROI possibly 150-200% around that ball park in the 10years period. Rough estimation of course.
@VTrade you are welcome. Ignore political factor when we invest, especially for this counter. If our entry is below RM4. It's a very safe & almost no risk investment. Don't have to border who is the government tomorrow.
@Zackmeiser, I checked back historical records. It pays dividend semi-annually. It paid 25 cents every year from FY2016 to FY2020, but cut the distribution to 20 cents in FY2021 due to pandemic impact. Therefore I think your assumption of 4*10 cents = 40c per annum is overly optimistic. It is unlikely to happen before it pays down its Sukuk.
The outstanding Sukuk as of the end of FY21Q3, FY20 and FY19 are RM584m, RM781m and RM995m respectively. At a rate of about RM200m repayment every year, it will probably take another 3 years to fully repay the Sukuk. After that it could increase dividend payment by a large amount.
However, the future dividend has to be converted into present value. Depending on the cost of equity, the future contribution may not worth a lot in today’s money. For example, if the cost of equity is 10%, a dividend of 60 cents four years later is only worth 60/ 1.1^4 = 41 cent.
On that basis, the sum of dividends in the next 10 years, converted to current money, will not be sufficient to cover the share price today. There have to be some other contributions to make the stock at about RM4 today a worthwhile investment.
Litrak value is at least rm5 (dividends only). Government wont maintain the hiway themselves by hiring more staff undwr JKR. I guess the gomen would gladly award at the very least maintenance contract to litrak by end of concession if no extension.
Thanks for the details @observatory. My ballpark calculations estimate the maximum roi for capital invested in the 10y, unless something happen along the way. I have raised similar question as to what happen to any toll company when it finishes its concession. Maybe litrak is first one in malaysia? Unless its getting new project, or venturing into other types of project (airport, ports) i dont see any needs of new highway in kl. 10years is not a long time for management to plan new project, using high cash flow from LDP to finance new project. Lets hope they have vision to grow the company rather than let the money given out as dividend only. Dividend is good, but not if the company liquidated in the end.
@Wijarati, highway maintenance alone in the post concession period cannot generate sufficient revenue. Maintenance expenses is in the order of RM20m a year (it was RM30m, RM25m, RM26m and RM15m from FY2017 to FY2020). Staff cost adds another RM27m per annum. Even with a 100% markup, the net profit generated will only be a fraction of current net profit at >RM200m annually. Litrak will need new projects/ businesses.
@Zackmeiser, my earlier comment is based on a very rough calculation too. A more refined calculation needs to look into the free cash flow generation. The annual cash flow from operation (CFO) declined slightly from RM383m in FY2017 to RM360m in FY2020 (lets ignore the pandemic period, where 9MFY2019 CFO was only RM105m).
Given that maintenance capex is minimal, I believe post pandemic the free cash flow (FCF) can revert to about RM350m per year. There is no more scheduled toll hike for LDP. Alternative routes and alternative transports may see its traffic volume (hence revenue) declines in coming years. But this could be offset by SPRINT, which until recent years have been loss making but now starting to make a small profit contribution.
Assume (1) Cost of equity at 10% (2) RM350m FCF per annum continues until FY2031, and with a bit more contribution from SPRINT before its concession ends too in 2031 and 2034
Subtracting the net debt of about RM120m, and divide by 533 million shares, the value per share is about RM4+, which is slightly higher than current price. Of course current price will be attractive if we know there is a good future beyond 2034, which right now is an unknown.
Of course, I may also err on the side of caution by assuming FCF is stagnant in the coming years. Who knows there might be marked increases in traffic and revenue from SPRINT, where Damansara LINK and Kerinchi Link still have one scheduled toll increase in 2022. But I have no clue about that.
Thanks for educational discussion. My take roughly rm4.5-4.7 is fair. However that could change substantially if they embark on new project. Back to my question anybody know any what happen to company when toll concession ends? Oversea perhaps?
There is precedence of toll concessions handed back to government. Below is produced from Google search.
“MTD Infra is the country's second largest toll concessionaire. Through its wholly-owned subsidiaries, MTD Prime Sdn Bhd (MTD Prime) and Metramac Corporation Sdn Bhd (Metramac), MTD Infra holds the concessions for the Kuala Lumpur-Karak Highway (KLK) and its extension, the East Coast Expressway Phase 1 (ECE 1), the East-West Link Expressway (East-West Link) and the Kuala Lumpur-Seremban Expressway (KL-Seremban).
Metramac Corporation Sdn Bhd was granted the concession on four toll roads in 1992 under a Replacement Concession Agreement signed with Datuk Bandar Kuala Lumpur. The four toll roads under the concession awarded to Metramac Corporation Sdn Bhd are Jalan Pahang, Jalan Cheras, East-West Link Expressway and the KL-Seremban Expressway. Tolling commenced on September 1991 for Jalan Cheras and on 1 August 1995 for Jalan Pahang, East-West Link and the KL-Seremban Expressways.
The toll concession of Jalan Cheras and Jalan Pahang were handed over to the Government on 14 September 2003 and 18 March 2004, respectively.”
Toll collection at Cheras was finally abolished in 2011. I’m not sure about the details, except that Cheras toll had massive jams regularly and was a hot political issue before toll abolishment.
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