Posted by observatory > 2022-04-17 15:46 | Report Abuse

Haha, I'm certainly not suggesting anyone to enter at this price. In fact I've offloaded some, but wonder whether I should hold on the remaining given the downside is also limited given the future dividend streams. However, someone who can assess the situation properly may spot a bargain if there is one. 8% gross margin when annualized is still rather attractive as the deal is to be closed by end July.

Posted by Nikola > 2022-04-18 11:14 | Report Abuse

@ observatory : In my view, the 9 ish % upside is appealing as I view the risk of the deal falling through as low despite of the fact that the success of the deal hinges upon several factors, namely: i) securing approval from offerees’ shareholders; ii) securing all necessary approval from government; iii) successful fund-raising by ALR. My take on the the 3 factors are as follows:

i) approval from offerees’ shareholders: shareholders will be keen to dispose of their highway since the offer made is a fair one, ie. at fair value. Willingness from shareholders stems from the fact that potential future traffic growth and the scheduled toll rate hikes for the remaining concession period would have been factored into the offer price. It is a matter of either receiving those nominal cash flows in the future or receiving the present value of those cash flows stream today after being discounted at an appropriate discount rate. Another incentive to the shareholders to sell at fair value would be the nature of toll highway concession business that is inextricably linked to policy risk. Government’s policy concerning toll highway can change in pursuit of a populist move, just to appease the Rakyat. Sophisticated shareholders (Gamuda and Institutional Investors) have witnessed the potential fallout of this in 2018 when the Government of the day proposed for nationalisation of the toll highways. Nationalisation means Government exercise its right under the Concession Agreement to expropriate the highways in the name of national interest. Under this scenario, the concessionaires will have to surrender the highway back to the Government and the Government will have to pay a compensation sum to the concessionaire. This compensation sum payable by the Government is not based on fair value, but rather derived in accordance to the terms under the Concession Agreement which do not consider the future cash flow of a highway. Concessionaires compensated in this manner would have to forgo the value from the potential future traffic growth and the scheduled toll rate hikes for the remaining concession period. Under the present offer from ALR, shareholders will be able to exit from this business at a fair price, without being subjected to further policy risk. On top of that Gamuda will be able to plough cash from disposal of its highway assets for future projects and pare-down its highway related debt, paving way for more dead head room for future projects.

Posted by Nikola > 2022-04-18 11:15 | Report Abuse

continuing from previous post

ii) Government to provide all necessary approval: Government has strong incentive to ensure this deal go through as the value proposition of this deal is tremendous to the Government. From Government coffer perspective, the government receives tax payment from concessionaire but at the same time pays toll compensation that is generally equivalent to = toll rate as per concession agreement – toll rate presently paid by motorist, multiply by traffic volume. Needless to say, toll compensation paid by government dwarf the tax collected from concessionaire since the government is compensating for shortfall in revenue, while collecting only 24% of taxable income. Case in point, compensation claim from the Government by Litrak ranges between 1.67 times to 1.95 times of taxes collected from Litrak during the period FYE2018 – FYE2021 (eg. for FYE2021: Litrak’s toll compensation claim claimed was RM125.2 mil while Litrak paid taxes of RM72.06 mil to the Government). By having ALR acquiring the highway and entering into a new concession agreement with the Government, the toll rates in the new concession agreement will be lowered to the toll rates presently charged to the motorist, negating the Government’s obligation to pay for toll compensation. At the same time, they will no longer be able to collect any further taxes since they will be granting ALR tax exempt status. No grouses from the government I suppose since the Government is net payee to the concessionaire (ie pay more than it receive from the toll concessionaire). Why is ALR being granted tax free taxus? This is government’s attempt to play its part in ensuring that ALR can accelerate repayment of its Sukuk payment to shorten the concession period. Recall that the new deal includes a term which allows for shortening of concession period in the event ALR’s Sukuk is fully repaid. In conclusion, any proposal that can reduce net payment from Government is gold. This proposal had struck the right chord with the Government and the Government simply has too much coins to lose if this deal falls through. From Government’s perspective, giving up their rights to collect taxes in exchange for being absolved from their obligation of hefty toll compensation is a no brainer trade off since toll compensation is at least 1.67 times to 1.95 times higher than the taxes collected based for Litrak’s case. On the non-quantitative aspect of things, this deal will resonate with the Rakyat, facilitating curry favouring effort when time draw closer to election season. The Government will be able to make statements that highlight the: i) potential billions in savings from toll compensation which can be redirected to other nation building purposes; ii) there will no longer be any more toll hike perpetually until the concession ends; and iii) toll booth can be removed once the ALR Sukuk is fully repaid, toll free thereafter.
iii) Successful fund raising by the ALR: Sukuk fund-raising by ALR will be successful if there are sukuk holders that are willing to subscribe to the Sukuk. This should not be a problem considering Litrak’s highway are matured highway, generating steady and recurring cash flows from operation to service ALR’s obligation under its Sukuk. In addition, extension of concession period by the Government would include a buffer period to buffer against unanticipated scenario whereby actual traffic volume deviates from the projected traffic volume. This provides further comfort to the Sukuk Holder that ALR’s default risk is low. Will ALR be subjected to the same policy risk of existing highway concessionaire? Highly unlikely since the thorny issue of paying toll compensation by the Government will no longer be in the equation after ALR acquires the highways.

Posted by observatory > 2022-04-18 13:46 | Report Abuse

@Nikola, thank you for replying. I agree with your points. Rationally all the players you've mentioned have self interests to conclude the deal soon.

But I'm looking for potential spoiler. So far I don't see any opposition from politician, be it from the opposition camp or the "court cluster" fraction. However there is still a possibility that the parliament may be dissolved before necessary approvals are granted.

I don't think it's a coincidence that the proposal target completion date coincides with the PH and government MOU expiry date at 31 Jul.

Posted by Hemsley > 2022-04-18 14:24 | Report Abuse

Litrak is having cash that equivalent to ~0.70 per share. Is this also counted into the 5.08? There will be another dividend (based on history, 0.10) in May for Litrak? If yes, possible that the dividend will be higher than normal this time?

Posted by Nikola > 2022-04-18 14:47 | Report Abuse

@ observatory: no worries at all on my reply. Totally agreed with you on your take regarding the targeted completion timeline for the proposed highway acquisition by ALR which is prior to the earliest date for dissolution of parliament (ie. 31 Jul 22). Implication is that the targeted completion date for the ALR deal is prior to GE.

As for potential spoilers, I imagine only time will tell. Hopefully no negative surprises, fingers crossed.

On a side note, Gamuda's Deputy Group MD, Danny Rashdan appears to be upbeat while speaking to The Edge in an interview on 6 April 2022. Comment from Danny Rashdan quoted from this article “Once we get the green light from shareholders, then the week after that they (ALR) can issue the sukuk and pay us (Gamuda)... hopefully by end-May or early June,”.

https://www.theedgemarkets.com/article/gamudas-highway-sale-conclude-early-endmay-says-deputy-group-md

Posted by Nikola > 2022-04-18 16:16 | Report Abuse

@Hemsley: based on Litrak's announcement pg 4 https://klse.i3investor.com/web/staticfile/view/456114
it insinuate that RM5.08 is the final equity value after taking into account of cash balance as at 31 Dec 2021 and the RM0.15 dividend payout per share on 30 Mar 2022. However this RM5.08 equity value has yet to take into account of the 2% interest income which may translate to maximum additional RM0.01 more per share [RM621 mil of cash balance x 2% x (31 Jul 22 - 1 Jan 22) / 365 = RM7.18 mil / 532.84 mil shares outstanding]

Excerpt of Litrak's dividend for your convenience:
"The implied equity value of the Company pursuant to the Offers and including the net cash position of the Company as at the Valuation Date translate to an implied equity value of RM5.08 per LITRAK Holdings’ share (“Implied Equity Value”). For avoidance of doubt, the Implied Equity Value as at the Valuation Date has already been adjusted to take into consideration the interim dividend of 15 sen per LITRAK Holdings share paid by the Company on 30 March 2022."

Posted by investortrader88 > 2022-04-18 22:10 | Report Abuse

https://www.theedgemarkets.com/article/litrak-sprint-kesas-smart-accept-conditional-offer-alr

Posted by fankim > 2022-04-19 23:35 | Report Abuse

Subject to the execution of the definitive agreements and completion of the Proposed Disposals, it is the intention of the Board of LITRAK Holdings <b>to distribute the corresponding net proceeds of the Proposed Disposals to the shareholders of LITRAK Holdings</b>.

Posted by Traderjoes > 2022-04-20 08:16 | Report Abuse

@fankim where did you find that ? tq

Posted by okdoke > 2022-04-20 09:46 | Report Abuse

any sifu/investors can furnish comment the statement by Litrak Holding as appended below " Subject to the execution of the definitive agreements and completion of the Proposed Disposals, it is the intention of the Board of LITRAK Holdings <b>to distribute the corresponding net proceeds of the Proposed Disposals to the shareholders of LITRAK Holdings</b>" Can we expect min RM5.08 per share to be distributed to shareholders . PLUS distributed 4.40 as per proceeds received from EPF during its privatisation. thanks in advance

Posted by jvcpcv55 > 2022-04-20 11:40 | Report Abuse

https://klse.i3investor.com/web/announcement/detail/1682923
Subject to the execution of the definitive agreements and completion of the Proposed Disposals, it is the intention of the Board of LITRAK Holdings to distribute the corresponding net proceeds of the Proposed Disposals to the shareholders of LITRAK Holdings.

Posted by Nikola > 2022-04-20 13:37 | Report Abuse

@okdoke: “Subject to the execution of the definitive agreements and completion of the Proposed Disposals, it is the intention of the Board of LITRAK Holdings to distribute the corresponding net proceeds of the Proposed Disposals to the shareholders of LITRAK Holdings”…
Means…
The board of Litrak Holdings has intention to distribute net cash received from the disposal of Litrak and Sprint to its shareholders. This however can only be done after: i) the shoreholders of of Litrak and Sprint execute a share sale agreement with ALR and ii) all conditions precedent of the share sale agreement are fulfilled (the date when all the conditions precedent of the share sale agreement are met is the completion date. Cash from purchase consideration can exchange hand upon completion).

Posted by okdoke > 2022-04-20 14:37 | Report Abuse

Thanks Nikola. Post disposal LDP and Sprint, Litrak holding has one subsidiary left ie 100%. Owned ETC links sdn bhd ( rental of software and related equipment)and listing status. Any comments on these after Litrak hldg distribute RM 5.08 per share ( kindly correct this figure if it is not right). Thanks in advance

Posted by Nikola > 2022-04-20 16:18 | Report Abuse

@okdoke: you are right. Was trying to look for more details and clues on ETC Links Sdn Bhd after you pointed this out.

Here's what I noticed sofar:
i) From segmental note disclosure in the annual report in pg 105, noticed that Litrak’s group business is broadly segregated into 2 segments namely i) highway; and ii) investment holding (under others). No other distinctive segment is observed. Investment holding is referring to the segment of investing activity by the Litrak Holdings, in its course of holding investment in its subsidiaries or associate company.
ii) The name ETC Links Sdn Bhd corresponds with the acronym ETC for ‘Electronic Toll Collection’. Electronic Toll Collection is a terminology referring to the manner in which transactions are made electronically at highways eg via Smart Tags or Touch n Go.
iii) Under the disclosure note for revenue in pg 82, no significant revenue was recognised apart from toll revenue.

Based on disclosure in the annual report, I don’t ETC Links Sdn Bhd is a substantial contributor to Litrak group’s revenue and earnings, if any at all. Another possibility is that it is subsidiary that rents out electronic toll collection system to Litrak and Sprint highway.

Posted by valuewood11 > 2022-04-21 00:53 | Report Abuse

May i know what would be the latest target price? Is it 5.08 or higher?

Posted by csan > 2022-04-21 11:21 | Report Abuse

hemsley, no. most of the cash is from their subsidiaries which is being taken over. the holding co has around RM7 million in cash which is about 1-2sen per share. so final proceeds distributed to shareholders should be around RM5.09-5.10.

Posted by csan > 2022-04-21 11:23 | Report Abuse

but i am quite sure that investors could be miscalculating the upside of litrak share price. investors have not considered the possible scenario where litrak remains listed as an empty shell company, providing a reverse takeover (RTO) opportunity to whoever who wants to list on Bursa. I'll be writing an article on this tomorrow.

Posted by Hemsley > 2022-04-21 11:49 | Report Abuse

So is it good to hold until the end, or cash out now with lower profit?

Posted by Traderjoes > 2022-04-21 11:49 | Report Abuse

@csan pls link ur artical here once it's done. tq

Posted by csan > 2022-04-21 12:39 | Report Abuse

hemsley, its very unlikely that the deal will fall through this time around because it must be done before elections so that BN can use this as an achievement and promise no future toll hikes. i will hold until the end and i expect this deal to be completed in june or july.

Posted by Nikola > 2022-04-21 12:42 | Report Abuse

@Hemsley, to answer this question. Consider the following example:

1. Bought at RM4.03 on 1 Apr 22, hold until investors gets their estimated RM5.08 (say on 31 Jul 22) via dividend and capital repayment. The IRR under this scenario would be 101%.

2. Bought at RM4.03 on 1 Apr 22, sells today at RM4.71 . The IRR under this scenario would be 1,621%.

Course of action under no 2 is superior after taking into account time value of money

Posted by Hemsley > 2022-04-21 13:19 | Report Abuse

Thanks to all sifus.

Posted by csan > 2022-04-21 13:50 | Report Abuse

nikola, lol and then from today until 31 july 2022 where to get 1621% irr? where did you get your finance knowledge lol

Posted by Nikola > 2022-04-21 15:28 | Report Abuse

@csan: what is your calculation of IRR for the above 2 scenarios?

Posted by Nikola > 2022-04-21 15:31 | Report Abuse

@csan: would you like to know what is the IRR for this scenario: buy on 21 Apr 2022 at RM4.71 and receives cash in the form of dividend and capital repayment amounting RM5.08 on 31 Jul 2022?

Posted by csan > 2022-04-21 15:58 | Report Abuse

nikola, your calculation for irr is not wrong. what you're implying in your comment to hemsley is to sell now because you would get irr 1621% instead of getting RM5.08 on 31 July. but it is ridiculous to recommend in this manner since irr is time sensitive. unless he can get another gem from now until 31 July that will boost his 1 april - 31 july irr to be above 101%, then there is no point selling today. i'm sure you know what i'm talking about.

Posted by Nikola > 2022-04-21 16:33 | Report Abuse

@csan: if one were to consider opportunity cost then it would make sense to go with the the route which yields the highest IRR. However in the absence of opportunity cost which manifest itself in the form of lack of competing investment opportunity, then it would make sense to go with one which produces the highest ROI I suppose.

Posted by taitaumau > 2022-04-21 17:42 | Report Abuse

RE: The Board of LITRAK Holdings intend to distribute the CORRESPONDING NET PROCEEDS of the Proposed Disposals to the shareholders.

My understandings
1. Relevant dates:
Valuation: 31.12.21
Definitive agreement: latest 31.07.22 or OTHER EXTENDED DATE ?
Completion date( 1 bus day upon fulfilment of CP): ??
Payment: ???

2. Implied Equity value : 5.08 per share
Best estimate
(a) Anticipated disposal proceeds (2,698 M/533.55 M shares) 5.057
(b) Net cash held at Holding level (Litrak Holding) 0.023

3. NET PROCEEDS arising from 2 (a) will be distributed after adjusting for
Add - 2 % p.a holding cost, daily rest on 2,698 M from 31.12.21 to date of completion
Less ?? - Costs on agreements & till completion of CP
- adjusting for exercise of outstanding ESOS (12 M)
- distribution costs (Litrak to Litrak Holding to us)
4. Net asset retained in non-expressway business: 7 M (estimate)
5. Left-over after distribution: ????, pending further announcement

MY BET : 5.05 (ignoring any undisclosed windfall) within 6 months from now

Posted by csan > 2022-04-22 08:38 | Report Abuse

hemsley, here it is.

https://klse.i3investor.com/web/blog/detail/shareseatreasure/2022-04-22-story-h1621549754-LITRAK_Investors_could_be_underestimating_the_upside

Posted by speakup > 2022-04-22 11:14 | Report Abuse

which is best to buy for ALR theme? Gamuda? KPS? Litrak?

Posted by speakup > 2022-04-22 11:17 | Report Abuse

https://klse.i3investor.com/web/blog/detail/shareseatreasure/2022-04-22-story-h1621549754-LITRAK_Investors_could_be_underestimating_the_upside

↑ most likely Gamuda inject one of their non core assets into Litrak?

Posted by csan > 2022-04-22 14:51 | Report Abuse

speakup, i don't recall gamuda having anymore income generating assets after the highway sales.

Posted by rohank71 > 2022-04-25 00:45 | Report Abuse

whatever asset injected to Litrak from Gamuda requires PNB and EPFs vote. and many other funds vote. we just relax.

Posted by 80gram > 2022-04-26 10:14 | Report Abuse

Maybe can inject property assets

Posted by csan > 2022-04-26 12:26 | Report Abuse

80gram, i'll be voting against that if it happens.

Posted by yinyang > 2022-04-26 15:01 | Report Abuse

How much effect will all those ESOS have on the final takeover price?

Posted by 80gram > 2022-04-26 15:18 | Report Abuse

when the cash is gone, u have a better use for it?

Posted by csan > 2022-04-26 15:22 | Report Abuse

80gram, anything but property. personal preference.

Posted by 80gram > 2022-04-26 15:29 | Report Abuse

top five highest in terms of property sales yearly... see if they can unlock value of that division...at projected RM500m yearly profit in the next few years...spinning if off would be nice...and it happens to have a shell company

Posted by stockraider > 2022-04-26 16:52 | Report Abuse

Remember if successful...u likely to get your money in Oct to Dec 20222 loh!

Posted by taitaumau > 4 days ago | Report Abuse

RE: The Board of LITRAK Holdings intend to distribute the CORRESPONDING NET PROCEEDS of the Proposed Disposals to the shareholders.

My understandings
1. Relevant dates:
Valuation: 31.12.21
Definitive agreement: latest 31.07.22 or OTHER EXTENDED DATE ?
Completion date( 1 bus day upon fulfilment of CP): ??
Payment: ???

2. Implied Equity value : 5.08 per share
Best estimate
(a) Anticipated disposal proceeds (2,698 M/533.55 M shares) 5.057
(b) Net cash held at Holding level (Litrak Holding) 0.023

3. NET PROCEEDS arising from 2 (a) will be distributed after adjusting for
Add - 2 % p.a holding cost, daily rest on 2,698 M from 31.12.21 to date of completion
Less ?? - Costs on agreements & till completion of CP
- adjusting for exercise of outstanding ESOS (12 M)
- distribution costs (Litrak to Litrak Holding to us)
4. Net asset retained in non-expressway business: 7 M (estimate)
5. Left-over after distribution: ????, pending further announcement

MY BET : 5.05 (ignoring any undisclosed windfall) within 6 months from now

Posted by csan > 2022-04-26 16:59 | Report Abuse

stockraider/calvin, estimated egm in june, complete in july but get money in october? any explanation for this? lol

Posted by stockraider > 2022-04-26 17:08 | Report Abuse

U need to get court order mah!

Btw....the successful deal is 70% v 30%......not 100% successful yet mah!
Anything unforseen can happen loh!

Be very careful....do not over commit mah!

Posted by rohank71 > 2022-04-26 20:43 | Report Abuse

agree with stockraider. well said. last 9% to be earned.

Posted by csan > 2022-04-27 16:12 | Report Abuse

stockraider/calvin, sell business/distribute dividend need court order? lol

Posted by 80gram > 2022-04-28 11:21 | Report Abuse

snp signing by end Apr?

Posted by csan > 2022-04-28 14:53 | Report Abuse

80gram, end april? very unlikely. you thinking too well about the government's efficiency haha.

Posted by 80gram > 2022-04-29 08:15 | Report Abuse

that's what Gamuda said? haha

Posted by Hemsley > 2022-04-29 09:15 | Report Abuse

Today is the last working day for April. The deal considered seal if nothing happen today?

Posted by 80gram > 2022-04-29 09:51 | Report Abuse

its Malaysian way...postponed la