Lingkaran Trans Kota (HOLD): Neutral on toll rate hikes; decent dividends

Lingkaran Trans Kota (HOLD, TP: MYR4.90, SP:MYR5.10): Neutral on toll rate hikes

What’s New

·         Litrak announced LDP and SPRINT will be raising toll rates charged to users by 31% and 50-100% starting 15 Oct 2015.

Valuations

·         Minor impact on our earnings forecasts as LITRAK has been compensated by the government before this.

·         Our earnings forecasts have also accounted for slower traffic growth from toll hikes.

·         Hence we keep our earnings unchanged.

·         Every 1-ppt shortfall in traffic growth in base year FY16 would impact our FY16/FY17/FY18 net profit forecasts for LITRAK by -1.6%/-0.02%/-0.02%, and TP by 0.5sen.

·         The positive is that this development will expedite LDP’s and SPRINT’s cash flows as they would not have to wait a few months for the government’s compensation.

·         LITRAK’s share price has done very well, increasing 46% YTD.

·         We downgrade to HOLD for its decent dividend yield of 4%.

·         Based on forecast earnings jump in FY16/FY17 from the toll rate hike, we estimate LITRAK can pay up to 35sen DPS in FY17 on 67% DPR, offering 7% yield.

IJM Corp (BUY, TP: MYR3.70, SP:MYR3.34): Slight negative

·         IJM’s highways including LEKAS, NPE and BESRAYA will also be increasing toll rates.

·         Its highways have also been compensated for the lower chargeable toll rates.

·         We have also imputed potential negative impact on traffic volumes growth in FY16 for NPE. However, we have not factor in potential slower traffic growth at BESRAYA and LEKAS.

·         However, the impact on our IJM’s earnings forecasts would be minor.  

·         Every 1-ppt shortfall in traffic growth in base year FY16 would impact our FY16/FY17/FY18 net profit forecasts for IJM by less than 1%.