Posted by 2Invest > 2021-09-30 11:36 | Report Abuse

https://www.bixmalaysia.com/Issuer-Info-Page.aspx?IssuerID=340

Posted by share_hunter > 2021-09-30 12:15 | Report Abuse

What is the impact to share price due to abovementioned issuance?

Posted by 2Invest > 2021-10-01 21:15 | Report Abuse

Trust? Nothing before offer price being announced. Most likely the company will ask existing shareholders if we have the interest in joining them as trust holder.

Posted by RainT > 2021-10-16 23:58 | Report Abuse

The edge buy this recently

Posted by RainT > 2021-10-16 23:59 | Report Abuse

just for MCO open theme only

more ppl travel on road

more toll collection

Posted by RainT > 2021-10-16 23:59 | Report Abuse

sell if rebound

cannot keep long term

LITRAK income stream is cannot sustain

Posted by makelittlemoney > 2021-10-17 07:09 | Report Abuse

why cannot sustain? it is the most sustainable stream..

Posted by EVEBITDA > 2021-10-22 00:43 | Report Abuse

sustainable but has political risk. best assumption is no toll rate increase and flat traffic... i think at current low interest rate environment... its may be worth 4.50 to 5.00

Posted by EVEBITDA > 2021-10-22 00:44 | Report Abuse

only if they do something about the debt equity structure... or else will stay 3.50 to 3.80 and enjoy the DV

Posted by RainT > 2021-10-24 17:12 | Report Abuse

if study further on litrak

its toll contract will end in few years time 5 or 10 yr


I forget ad ....and there is no new income stream come in yet until now

Posted by EVEBITDA > 2021-10-25 12:45 | Report Abuse

LDP expires on 2030 or 31. whilst sprint expires on 2034. ldp has no toll increase till expiry but being compensated RM1.00 per car now.

Posted by EVEBITDA > 2021-10-25 12:46 | Report Abuse

sprint has 1 toll rise to RM5.00 in 2022 and not sure if any more after that.

Posted by observatory > 2021-10-27 11:36 | Report Abuse

@EVEBITDA,
The Sukuk repayment is RM200m a year based on schedule laid down long ago. Litrak will be debt free in 2 year time and dividend will increase. As you’ve pointed out concession expires in early 2030s. So the cashflows are quite predictable post Covid related traffic disruption.

However there are two uncertainties. One is the Highway Trust. Second is assuming Highway Trust doesn’t work out, what will the parent company Gamuda do before concession ends to prevent Litrak from becoming a cash company? Will it inject new businesses or rather let it delisted? What is the value of a listed status?

Your thoughts on this?

Posted by EVEBITDA > 2021-10-27 13:25 | Report Abuse

litraks debt will b fully paid on 1 April 2023 and they have equal amt of cash as at end 31 marcg 2021. annual cash flow is abt 350M or abt 70 sen per share per annum. pre Covid.

Posted by EVEBITDA > 2021-10-27 13:26 | Report Abuse

9 full years to go from 31 March 2021 is already 6.30 cash per share to be paid to all sharholders. excluding 3 to 4 years from Sprint and any traffic growth and toll increase effect.

Posted by EVEBITDA > 2021-10-27 13:28 | Report Abuse

cash co is not too bad after all as Gamuda has better governance vs many other company owners. also we have pnb amd epf as major shareholders.

Posted by EVEBITDA > 2021-10-27 13:29 | Report Abuse

hope gamuda can inject some other lucrative concessions or pay out the cash as dividends. alternatively litrak can draw down another loan and pay out a huge capital repayment which will be equivalent to the trust scheme.

Posted by EVEBITDA > 2021-10-27 13:30 | Report Abuse

esp during this low interest rate environment. just my thoughts.

Posted by observatory > 2021-10-28 01:10 | Report Abuse

Good point. For simplicity, I shall assume the gain from last toll increase for Sprint in 2022, and Sprint's remaining contribution from 2031-34, will be offset by gradual decline in LDP tollable traffic which actually peaked in FY2015. The FCF of ~70 sen per annum is about right considering there is minimal capex. Of course, after discounting to present value, the current share price is either about right or just slightly undervalued depending on the discount rate used.

I expect most of the FCF will be paid out as dividend given that Gamuda needs cash to fund its infrastructure projects such as the Penang South Island (assumes it goes ahead). Besides given government's fiscal constraint, future bidders of government projects like MRT3 will be expected to shoulder most of the financing.

Speculation over Highway Trust notwithstanding, there is probably little room for capital appreciation. However I like to think of the stock as a 10 year bond that can be held until maturity.

Current low interest rate works in its favor. Unfortunatley the future interest rate direction can only be up. I worry less about political risk or a resurgence of Covid than a sustained bout of inflation which will force BNM to raise interest rate. Unlike typical companies Litrak cannot raise its price (tolls). Just like bond, sustained high inflation can be its biggest enemy, although the possibility may be on the low side.

Posted by EVEBITDA > 2021-10-28 08:34 | Report Abuse

chances are litrak will announce a debt equity/ a capital mgmt structure 9 to 12 months before its current bond expires. this is to avoid a penalty payable to current bond holders.

Posted by EVEBITDA > 2021-10-28 08:37 | Report Abuse

whether its a highway trust or just a simple fund raising via a new bond issue doesnt make any difference. highway trust helps the govt by aboloshing the toll compensation and extending the concession period. a new bod issue will b status quo...

Posted by EVEBITDA > 2021-10-28 08:40 | Report Abuse

highway trust, shareholders will get paid in their discounted CF today vs bond issue will be 70 to 80% of future cash discounted paid today and balance 20 to 30% over next 10 yrs.

Posted by EVEBITDA > 2021-10-28 08:42 | Report Abuse

yes treat it as a 10 yr bond with little excitemnt of early payout. surely u cant beat inflation if inflation gets red hot. its a defensive play. more like FD money but bettr returns.

Posted by observatory > 2021-10-28 12:46 | Report Abuse

I don't understand your point about penalty payable to present bond holders. Can you elaborate?

Yes the management should replace equity capital with cheaper debt capital. How much can it possibly borrow? As of 2QFY22 the equity is RM1.2b and HDE asset RM1.1b. Does RM1b fresh borrowing make sense? That will translate to debt/ equity ~1X.

Before Covid annual EBIT was about RM380m. Current Sukuk has a profit margin up to 6%. Assuming 6%, the first year finance cost for RM1b borrowing is about RM60m, implying a interest coverage ratio of about 6X. Does these figures make sense?

Not too sure how to calculate the savings for shareholders. Assuming 10% cost of equity, should the approximate saving = (10% - 6%) * RM1b * 4.5 years (average duration) = RM180m, or about 30 cents per share?

If Litrak goes for fresh borrowings, I suppose it will have to forego the option of highway trust. You're right the cashflows are similar. But a trust coupled with extended concession will give the certainty of highway management and maintenance work beyond 2034 (although in current form it may still win maintenance work after concession has ended). I wonder whether they may prefer one form over another?

Posted by EVEBITDA > 2021-10-28 13:10 | Report Abuse

early redemption of bonds attracts penalty... ie pay interest in full till expiry of the bonds with a small discount being the repo rate.

Posted by EVEBITDA > 2021-10-28 13:13 | Report Abuse

normally if steady cashflow of 350M can easily do a bond of 6 to 7X or 2B to 2.5B. rates now lower.. a 7 yrs bond will attract an avg rate of 5% max.

Posted by EVEBITDA > 2021-10-28 13:14 | Report Abuse

u r right... gamuda may push for the trust with extension as they can continue with the maintenance for longer period and govt doesnt need to compensate.

Posted by EVEBITDA > 2021-10-28 13:16 | Report Abuse

possible for litrak to do a 10 yrs bond with 300M going to bond repayment and interest and 50M as dividend.after making a 2.5B payout as capital repayment.

Posted by EVEBITDA > 2021-10-28 13:18 | Report Abuse

to increase its reserves they may consider revaluation of its concession to fair value.

Posted by observatory > 2021-10-28 13:51 | Report Abuse

I get your point now. 2.5b capital repayment is a lot of money. But recall in the MOF offer in 2019, Litrak was valued at 2.75b (2.3b for LDP + 50% of 0.9b for Sprint). Given the concession has shortened by 2 years since and after 240m dividend paid during the interim, the two numbers match nicely.

If the 2019 offer were to go through, Litrak would probably have been delisted by now; shareholders have gotten back their money; and the government owns the assets now.

Under the scheme you mentioned how will it work out? Does it mean Gamuda use the borrowing to privatize Litrak and in the process also raises 1b+ fresh cash for itself?

The extended maintenance business under a trust arrangement is probably a nice to have only. Excluding depreciation, the pre-Covid annual operating expenses is about 60m. Even with 15% markup the profit is only 10m a year, which is dwarfed by the scale of capital involved here.

Posted by EVEBITDA > 2021-10-29 00:49 | Report Abuse

the value of 2.75B is a discounted value based on CF. assuming its discounted at 8% per annum, its should be 3.2B less DV of 240M the value shpuld be 2.96B

Posted by EVEBITDA > 2021-10-29 00:52 | Report Abuse

value after 2 years of the proposal assuming no loss due to covid effect. hence i feel no value diminished yet due to the short life of the concession until litrak pays almost 100% of1 their earnings.

Posted by EVEBITDA > 2021-10-29 00:54 | Report Abuse

on the same parameters of the earlier valuation the new offer should be almost eequal to earlier offer.

Posted by EVEBITDA > 2021-10-29 00:56 | Report Abuse

offer or value of litrak based on the same parameters if there is a highway trustb proposed to shareholders.

Posted by observatory > 2021-10-31 22:00 | Report Abuse

@EVEBITDA,

Revisiting your earlier comments. Earlier you mentioned if they issue new bond they may increase reserve by revaluing the concession to fair value. What is the purpose of revaluation? Is it a necessary accounting treatment such that the equity becomes higher and the resulting debt to equity ratio lower?

The next question is will such revaluation be considered as a gain, and more importantly a taxable gain? If yes, if performed next year will the entire gain fall under 2022 where the 33% prosperity tax (cukai makmur) apply?

Posted by EVEBITDA > 2021-11-06 17:56 | Report Abuse

i just gave a simple theory. the ppl at gamuda and the advisors will know how to skin the cat. they know the company better to do the necessary. this theory is not something new and was used by PLUS.

Posted by EVEBITDA > 2021-11-06 17:58 | Report Abuse

in short when u have good, steady and somewhat predictable cashflow, borrowing is easy and cheap. so why use equity. its just that how they gonna skin it.

Posted by observatory > 2021-11-06 20:28 | Report Abuse

@EVEBITDA,

That is a good point.

Based on my own simulation, borrowing on the parameters you’ve provided (~2.5b fresh borrowing @ 5%), Litrak can probably distribute 3.50 to 4.00 up front, and continues with 20 sen annual distribution for another decade. Apply a COE of 8% this exercise can probably add extra 50 sen to the company's intrinsic value.

Without the new debt issuance, investor can expect 60-70 sen annual dividend after current debt is paid down, but the present value of the cash flow is much smaller, may be about RM4.3? That assumes a 8% COE. If COE is set to 10% say due to extra risks like uncertainty in government payment, then it's worth not much more than current price.

Nonetheless that's probably a bear case scenario. Overall it feels like a good investment despite limited upside as discussed earlier.

Yeah, it's enough incentive for Gamuda to do something, especially if it needs the cash to fund other projects. However given Gamuda also owns Kesas and SMART, does it make sense to monetize all four highways in a single exercise? Given that will involve other stakeholders and more complicated, will it take extra long to complete, especially should some parties want to get clarity on Highway Trust first?

Posted by EVEBITDA > 2021-11-06 21:48 | Report Abuse

kesas has abt 2 years or less to go and smart not much in value in the whole scheme of things.. infact can b a drag.

Posted by observatory > 2021-11-06 22:53 | Report Abuse

Sometimes I'm mystified by the way bankers performed their valuation.

Refer to the proposal document on 2019 to takeover the 4 highways, LDP was valued at (PV) RM2.3 billion, and Sprint at RM0.9 billion (or RM0.45b for Litrak's 50% interest).

However based on past reports, Sprint was never a much profitable venture. Litrak reported its earning under "share of results of an associate". They were losses in certain years. The best result ever was RM22.6 in shared profit. No dividend had been paid. While there is a last toll hike where (class 1) fare is increased from RM2.00 to RM2.50 at Damansara's Link, and RM3.50 to RM4.50 at Kerinchi Link, Sprint daily tollable traffic from 249k in FY2015 to only 200k in FY2020.

I find it difficult to understand how could Sprint be remotely worth RM0.9billion. Do I miss out something?

Posted by observatory > 2021-11-06 22:54 | Report Abuse

Good point on Kesas and SMART

Posted by observatory > 2021-11-06 23:35 | Report Abuse

Correction: In the best year, shared profit from Sprint was RM22.6m.

For completeness, the shared results from Sprint year by year:

FY2014 RM8m loss
FY2015 RM1m profit
FY2016 RM12m profit
FY2017 RM5m loss
FY2018 RM4m loss
FY2019 RM1m profit
FY2020 RM18m profit
FY2021 RM23m profit

The daily tollable traffic at Sprint is on a downtrend, at -4.3% CAGR from FY15 to FY20 (compare with LDP at -2.3% CAGR over the same period)

FY2014 238,500
FY2015 249,100
FY2016 247,000
FY2017 226,000
FY2018 221,000
FY2019 210,000
FY2020 199,500
FY2021 126,000

Posted by observatory > 2021-11-07 01:14 | Report Abuse

The proposed offer in 2019 can be found here:

https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_details?ann_id=2964344

LITRAK Holdings value
= 100% of LITRAK (i.e. LDP) + 50% of SPRINT
= 100% * RM2.3b + 50% * RM0.9b
= RM2.75b

Posted by observatory > 2021-11-07 01:40 | Report Abuse

Maybank has adjusted the value of SPRINT downward. As per Aug 2021 report, it values the company at

= 100% of LDP + 50% of SPRINT
= 100% * RM2,259m + 50% * RM674m
= RM2,259m + RM337m
= RM2,596m

https://www.bursamarketplace.com/mkt/tools/research/ch=research&pg...

Back of the envelope calculation for Sprint - after 2022 toll hike, assume average toll increase = (RM1 + RM0.50 + 0) / 3 = RM0.50, at 200k daily traffic, extra annual revenue is about 365 * RM0.10m = RM36.5m.

The extra RM36.5m revenue goes straight to bottom-line as cost remains the same. A 50% interest in Sprint implies ~RM18m profit shared.

So shared profit could indeed double from current level at ~RM20m a year. Maybank's estimate of Sprint's value seems more reasonable. But that assumes traffic will stop falling in future years.

Same assumption should apply to LDP such that its traffic should not continue to drop in coming years (due to other alternatives)

Posted by donald770 > 2021-11-07 17:28 | Report Abuse

So please gentlemen, is it worth to buy in this stock at 3.80? Share your thought in plain language.Yours are too technical for me, considering the recent announcement of toll revision.

Posted by donald770 > 2021-11-07 17:28 | Report Abuse

Many thanks

Posted by observatory > 2021-11-07 19:50 | Report Abuse

There is no one size fit all investment given everyone has a different return expectation, risk appetite and investment horizon. But I share my personal experience and you decide whether it makes sense for you.

I've bought at price higher than current level, and also at the lows during MCOs. Litrak is just part of a diversified portfolio. I don't expect capital appreciation, but look for regular dividends. As mentioned earlier, I view it like holding a 10 year bond, meaning I plan to hold until concession ends. I expect over the next 10 years it could average at least 8% compound annual return, and hopefully even up to 10%.

It seems that EVEBITDA is a corporate finance expert. He has brought up a good point that through some financial engineering Litrak could be made to return even more, and faster too. But just be mindful that the upside, if realized, is unlikely to be higher than the original offer given by the PH government.

Buy and hold for long long term. Treat any capital appreciation as a bonus. Then one will not get disappointed if nothing happens.

Just my perspective.

Posted by donald770 > 2021-11-07 21:29 | Report Abuse

Many thanks to Observatory. Your summary.is very useful .

Posted by 2Invest > 2021-11-08 17:26 | Report Abuse

Hi Donald770. It's a very safe investment if your cost is below 4/=. Treat it as a FD counter with better yield will do. Don't expect it will have much appreciation will do. Cheers & happy investing

Posted by donald770 > 2021-11-09 08:40 | Report Abuse

Many thanks, gentlemen!!!!