Lingkaran Trans Kota Holding Bhd (+ve)

Litrak (Fundamental: 2/3, Valuation: 1.5/3) rose 3.5% to close at a one-year high of RM4.80 yesterday, amidst broader market selloff. Year-to-date, the stock has risen by 33.1%, outperforming the benchmark KLCI, which fell by 9.3% during the same period.

Litrak holds the concession for the 40 km Lebuhraya Damansara-Puchong (LDP) until August 14, 2030. The company also holds a 50% stake in Sistem Penyuraian Trafik KL Barat Holdings Sdn Bhd (SPRINT), which is the concessionaire of the SPRINT highway. Under the concession agreements, Litrak is entitled to raise toll charges at LDP every nine years and once in seven years for SPRINT.

Investors likely anticipate higher earnings for Litrak with the impending toll hikes on LDP starting Jan 1, 2016. Class 1 (private cars) rates will increase to RM3.10 – an increase of 47.6%. Litrak would still receive compensation from the government if the toll rates are not revised.

Meanwhile, SPRINT has increased the toll rates at SPRINT highway beginning January 1, 2015, by 33-40%. As a result, the previously lossmaking SPRINT has contributed a net profit of RM2.9 million in 4QFYMar2015.

Strong operating cash flows from both highways have enabled Litrak to pay steady dividends. Annual dividends totalled 17 sen per share from FY2010-FY2014, before being bumped up to 20 sen per share for FY2015, giving a net yield of 4.3%.  

From FY2010-FY2014, revenue and net profit have grown at CAGR of 4.8% and 11.8% respectively. For FY2015, revenue increased 1.8% to RM380.7 million while net profit rose 2.8% to RM137.9 million on higher traffic volume and lower finance cost.

Gamuda Bhd holds a 44.45% stake in Litrak, and other substantial shareholders include Kumpulan Wang Persaraan or KWAP and the Employees Provident Fund Board.

The stock trades at a trailing 12-month P/E of 17.4 times and 4.5 times book.

This article first appeared in digitaledge Daily, on August 17, 2015.