Highest return on equity over three years: Transportation & Logistics: Lingkaran Trans Kota Holdings Bhd - Holding on to pole position despite decline in tollable traffic

This article first appeared in The Edge Malaysia Weekly, on December 14, 2020 - December 20, 2020.
Highest return on equity over three years: Transportation & Logistics: Lingkaran Trans Kota Holdings Bhd - Holding on to pole position despite decline in tollable traffic
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Highway concessionaire Lingkaran Trans Kota Holdings Bhd (Litrak) has provided its shareholders with commendable return on equity (ROE) over the last three years, putting it in pole position in the transportation and logistics sector.

Based on the adjusted weighted ROE over the last three years, Litrak’s ROE stands at 29.1%. However, the highway concessionaire’s ROE had moved downwards over the three financial years in review, from 33.4% in 2017 to 29.7% in 2018 and, finally, to 26.9% in 2019.

Litrak’s net profit increased 6.8% to RM236.1 million in 2019 from RM221 million in 2017. Over the same period, its net asset per share rose from RM1.36 to RM1.76.

Over the last three years, the company has been paring down its borrowings, from RM1.23 billion in 2017 to RM994.8 million in 2019. This improved its net gearing to 0.36 times at the end of the financial year ended March 31, 2019, from 0.64 times the year before.

Malaysians, especially those living in the Klang Valley, would be familiar with the highways constructed, operated and maintained by Litrak: Lebuhraya Damansara-Puchong (LDP) and Western Kuala Lumpur Traffic Dispersal Scheme (SPRINT Highway).

Even though the highways appear to be congested most of the time — especially during peak hours — the average weekday tollable traffic has been on a decline. Traffic on the LDP decreased from an average of 478,000 vehicles on weekdays in 2017 to 460,000 in 2019. The company attributes this to newer highways as well as road users choosing to use public transport such as the mass rapid transit (MRT) instead.

As with other companies, Litrak has been impacted by the Covid-19 pandemic. The Movement Control Order (MCO) in March this year led to a decline of 85% to 90% in tollable traffic volume on both highways, the company observes in its 2020 Annual Report.

It adds that since the relaxation of the movement restrictions and resumption of most business activities in May, the highways have seen a recovery in tollable traffic volume compared with April, albeit still at slightly below pre-MCO levels.

“Barring a resurgence of a second wave of the Covid-19 or similar pandemic, the group envisages tollable traffic volume returning to the pre-MCO level with the full lifting of the MCO by the government in the near future,” it adds.

Meanwhile, the company says the offer from the previous government administration in June 2019 to acquire the LDP and SPRINT Highway lapsed on Feb 29, 2020, as there was no further extension executed before the cut-off date to finalise definitive agreements.

MIDF Research, which has a “buy” call on Litrak, believes that there is a downside risk to traffic volume with the introduction of an unlimited monthly pass to encourage the use of public transport.

“For the longer term, the completion of KVMRT (Klang Valley MRT) Line 2 in 2022, which connects Sungai Buloh, Serdang and Putrajaya, and the possibility of KVMRT Line 3 being reinstated will also exacerbate the risk to tollable traffic volume.

“Specifically for SPRINT, the Damansara Link runs parallel to the stretch of KVMRT Line 1 from the Semantan station to Taman Tun Dr Ismail station. We opine that the impact on traffic volume will be more pronounced with the continuous improvement in public amenities and connectivity,” it adds.

Conglomerate Gamuda Bhd holds a 43.56% stake in Litrak.