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28-08-2006: Litrak expects single-digit traffic growth from now

By Isabelle Francis

Lingkaran Trans Kota Holdings Bhd (Litrak) expects a single-digit growth in traffic volume and foresees toll revenue growth to be underpinned by higher toll rates moving forward, said its chief executive officer Sazally Saidi.

Sazally said the Damansara-Puchong highway saw about 460,000 vehicles passing through its four toll plazas every day. He said traffic growth this year would likely be less than the 7%achieved last year.

“We will be looking at single-digit growth from now onwards as the highway matures. That is the trend for highways," he told reporters after Litrak's AGM and EGM in Shah Alam on Aug 29.

He added that discussions with the government on revising toll rates were still ongoing and are expected to be finalised before Jan 1, 2007.

“If there’s an increase, you’d see a reduction in volume but our total toll revenue should increase. From our experience, traffic would eventually come back again in six to 12 months."
Moving forward, Sazally said that Litrak would only see minimal capital expenditure in the immediate term.

He added that it plans to carry out its major upgrade works in the next 10 months. This will be financed by the RM30 million capital expenditure announced earlier this year.

Its chief operating offier Richard Lim said its toll plazas alignment was strategic, enabling it to benefit from township developments especially in Puchong and Damansara. “We expect traffic to grow once these townships are established. We have not reached our capacity yet, especially the toll plazas in the Southern side near Putrajaya.”

03-08-2006: Gamuda continues to raise Litrak stake

Gamuda Bhd continued to raise its stake in Lingkaran Trans Kota Holdings Bhd (Litrak), acquiring another 4.49 million shares on July 27.

A filing to Bursa Malaysia showed that after the acquisition, Gamuda owned 41.88% or 203.96 million shares. Litrak share price closed at RM2.72.

In January this year, Gamuda managing director Datuk Lin Yun Ling said the construction company wanted to increase its equity interest in Litrak to up to 50% but it will be done at an average market price of RM2.80.

He was quoted saying that based on Litrak share price at around RM2.80 “we will have a rate of return of between 17% and 18%, which we think is a good investment”.

11-July-2006 Toll concessionaires in the limelight

By Risen Jayaseelan

A number of highway concessionaires are slated for a scheduled toll hike beginning next year, as stipulated in their agreements with the government. These include Lebuhraya Damansara-Puchong (LDP), which is slated for a 60-sen hike, and the two toll gates at the Kuala Lumpur-Karak Highway, which will see an increase from a total of RM6.50 to RM8. The Cheras-Kajang Highway is due for a hike of more than 40% while Lebuhraya Shah Alam’s (Kesas highway) scheduled increase is from RM1.50 to RM2.20. The operator of the LDP is Lingkaran Trans Kota Holdings Bhd (Litrak), which is 38.4% owned by Gamuda. The LDP, which runs on a 33-year concession, is one of the most heavily used and lucrative highways in the Klang Valley.

However, the government has been subsidising 50 sen for every passenger car unit (PCU) since tolling on the highway started in January 1999. Stripping out the government subsidy and considering the new schedule hike, the new rate could be RM2.10. If the 50- sen subsidy continues, motorists will have to fork out RM1.60 or an additional 60 sen. GK Goh Research expects Litrak’s profits to jump more than 50% year-on-year in FY2007 and FY2008 as the toll increase, if approved, will flow directly into its bottom line. The report adds that Litrak’s dividends should double from current levels by FY2008. Litrak also operates the SPRINT Highway, which is scheduled for a rate hike although only in 2008. The 60km KL-Karak

Highway is operated by MTD Infraperdana Bhd. The Gombak stretch of the highway charges a RM4 toll while the toll rate on the Bentong stretch is RM2.50. The toll rates are scheduled to rise to RM5 and RM3 respectively. Unlisted Grand Saga Sdn Bhd is the concessionaire for the Cheras-Kajang Highway. There are two tolls on the 11.5km road. Current toll rates (for private passenger cars) are 70 sen at the ninth-mile toll plaza and 60 sen at the 11th-mile toll plaza. The scheduled increases for these tolls come January are RM1 and 90 sen respectively. The Kesas highway is operated by Kesas Sdn Bhd, in which Gamuda has a 30% stake. It is also scheduled for a rate hike to RM2.20 from RM1.50 currently. Although these increases have been scheduled, it is left to be seen whether they will take place as planned. In the past, the government has sought to renegotiate terms with concession holders for what have been deemed as social and political reasons. Explains an analyst, “As a result of the widespread opposition encountered each time toll rates are raised, the government has renegotiated with nearly every toll concessionaire for toll increases to be staggered over a longer period of time in return for a lower rate hike.” Toll rates are typically raised every three to five years at a compound rate that commensurates with inflation and operations and maintenance costs.

However, road users and other parties tend to resist toll increases. In the event a toll rise falls in an election year, there is the strong likelihood that the government will not want to approve it. If the government does not approve the toll hike, it has to compensate toll concessionaires for the difference. This is the case with the LDP, where the government is subsidising 50 sen per PCU. Analysts say in such cases, concessionaires actually benefit as low toll rates keep traffic volume higher than if rates are raised. “Revised concession terms are typically worked out in such a way that there is no impact on the net present value and any shortfall is compensated either through a lump sum cash payment or an extension to the life of the concession,” explains an analyst. The government could also ask the concessionaire to defer a toll hike and in return, the concession period is extended. In the case of PLUS Expressways Bhd, the biggest player in the toll road business, the government has lengthened its concession by eight years and seven months to end-2038 in lieu of certain toll hikes. Also recall that in 2003, the government revised the concession terms of the KL-Karak Highway. To compensate for a reduced toll rate, the government wrote off RM183 million in soft loans given to the concessionaire. The government also compensated the concessionaire RM97 million in cash and extended the concession by six years. Still, analysts point out that delays in toll rate increases tend to have a negative impact on earnings. “Earnings in the near term will be [negatively] affected and this in turn could push up the price-earnings multiple of the company,” notes an analyst. He adds that investors are also wary of revisions to concession agreements because of uncertainties. There is also a point of view that toll road concessions could be called into more serious negotiations by the government because of the discussions that are going on with the independent power producers (IPPs). The government is taking a second look at the terms of IPP agreements because many quarters feel that the IPPs are making excessive profits. However, although no decision has been reached, it is unlikely that the terms of the IPPs and those of toll concessionaires can be changed drastically. This is because any negative impact on the sanctity of the agreements relating to IPPs and toll concessionaires can have repercussions. A key issue would be financing as lenders are likely to shy away from such concession holders if it is discovered that their agreements can be revoked by the government.

29-May-2006 Investing Ideas: Litrak a strong cash generator

By Cindy Yeap

Its profits are growing. It will generate about RM160 million of free cash flow over the next three years. It is scheduled to get a 40% toll rate hike come January 2007 and be compensated if that does not materialise. That’s three reasons why analysts are calling a “buy” on Lingkaran Trans Kota Holdings Bhd, better known as Litrak. At last look, shares of Litrak, the concessionaire of Lebuhraya Damansara-Puchong (LDP), are already up 14% from the beginning of this year and 41% more than their price a year ago. But at least three analysts say there is still upside to the stock. The highest 12-month price target is from BNP Paribas at RM3.96, according to Bloomberg data. This represents a 55% potential upside going by last Friday’s RM2.56 close. “We like Litrak for its strong cash flow generation capability. We estimate FCF/EV [free cash flow over enterprise value] of 10.5%, which is 1.8 times that of PLUS Expressways Bhd. At current levels, we believe the market is undervaluing its cash flow,” a local analyst told clients earlier this month. Last Tuesday, the stock gained 12.15% ahead of the entitlement date of its 25 sen cash distribution and the release of its earnings for its fiscal year ended March 2006. Last Thursday, the company reported fourth quarter numbers that beat street estimates by 17%, helped by the taking in of lower than expected losses from its associate company, Sistem Penyuraian Trafik KL Barat Holdings Sdn Bhd (Sprint). “Losses from Sprint narrowed considerably this quarter… that was a [positive] surprise for the market… If you look at the traffic [volume] loss to LDP due to the partial closure of the MRR2 [Middle Ring Road 2], the same amount went to Sprint and that helped cut [associate] losses significantly,” says one analyst.

Net profit for the year ended March 31, 2006, rose 42.7% to RM79.74 million from RM55.88 million year-on-year on the back of a 7% topline growth to RM242.97 million. It is uncertain if analysts will be revising their earnings forecast for the company upwards due to the stronger than expected showing. Current consensus net profit forecast of RM84.08 million for fiscal year ending March 2007 (according to Bloomberg data) indicates a 5.4% growth this year. One analyst explained that his price target for the stock is derived from the company’s strong cash generation capability, which essentially translates to good dividend and cash distributions for its shareholders. Worth noting is the fact that Litrak’s controlling shareholder, Gamuda Bhd, has been raising its stake in Litrak. Analysts see the move as a strategy to help absorb the contraction in Gamuda’s earnings from its construction business. Gamuda in January increased its shareholding in the company, although the latter’s top management has said there are no plans to make Litrak a subsidiary for the time being. Gamuda now owns 40.25% of Litrak, after acquiring just under 2% of the latter’s shares on the open market at around RM2.80. (The RM2.80 is equivalent to RM2.24 now after a 25 sen cash distribution via a one-for-four bonus issue. The bonus shares were later cancelled.) Gamuda managing director Datuk Lin Yun Ling on Jan 12 had told reporters that buying Litrak shares was “a good investment” which gave them some 17% to 18% rate of return. At last Friday’s close of RM2.56, Gamuda has made a 14% paper gain on the money it spent to buy Litrak shares in January. One analyst reckons Gamuda would eventually want to consolidate Litrak into its books. This is not contrary to Lin’s statement to stay shy of 50% shareholding in Litrak. “I believe Gamuda would continue to absorb Litrak shares from the open market at prices they believe is right, and without triggering a mandatory offer… Litrak is generating strong cash and once debt levels fall in about five years, consolidating Litrak would be good for Gamuda’s books,” says the analyst. According to rules governing listed companies, Gamuda can buy up to 2% of Litrak shares every six months without triggering a mandatory general offer obligation. Meanwhile, Litrak (in its notes to accounts) says the partial closure of the MRR2 since February 2006 has had a negative impact on traffic volume at its Penchala Toll Plaza. However, the company says it “will not significantly affect” the overall results of the group in the current financial year. The closed section of MRR2 is expected to re open this August. Although its net dividend yields (excluding the recent 25 sen cash distribution) is only around 3% due to its lack of Section 108 tax credits, analysts are bullish on the company’s ability to change that due to its strong cash generation capability. “Litrak should have sufficient Section 108 tax credits in five years… around 2011. In the mean time, the company can also choose other means to boost yields such as capital repayments,” says one analyst. In fact, gross yields are expected to pick up to around 8.6% in fiscal 2008. Previously, losses from its 50%-owned Sprint highway were the dampener to Litrak’s earnings performance. “Sprint is expected to still be loss-making over the next few years due to interest expense and amortisation charges, but the market is beginning to see positive signs. If they continue to successfully cut Sprint’s losses, the market is bound to give them more recognition,” says one analyst. Litrak holds a 33-year concession with the Malaysian government for constructing the LDP, based on an agreement signed on April 26, 1996. Sprint manages the Damansara Link, Kerinchi Link and Penchala Link.

25-01-2006: Litrak to spend RM30m-35m on road upgrade

By Kevin Tan

Lingkaran Trans Kota Holdings Bhd (Litrak) is allocating between RM30 million to RM35 million this year to upgrade roads and other related-facilities, its chief executive officer Sazally Saidi said.

Of that, more than RM20 million would be used to resurface the Damansara-Puchong Highway (LDP), he told reporters after Litrak’s EGM in Shah Alam on Jan 25.
He said the company was spending a considerable amount for the LDP upgrade works this year considering it only spent about RM10 million for such works in the past.
Sazally said Litrak planned to start the upgrade works by the first quarter of the year. Litrak is still identifying the areas for upgrading and staggering them for work in stages. Besides LDP,

Litrak also holds a 33-year concession for the 26.5 kilometre-long Sprint Highway, which consists of Kerinchi, Penchala and Damansara links.
Litrak chief operating officer Richard Lim Kim Ong said while the Sprint highway contributed a positive cashflow, the returns had yet to match the investment.
He was however confident of Sprint’s contribution to the company over the long run. “Overall, the project will give us a positive return in the concession period,” he said.
12-01-2006: Gamuda wants to up Litrak stake to 50% By Doreen Leong

Gamuda Bhd wants to increase its equity interest in Lingkaran Trans Kota Holdings Bhd (Litrak) to up to 50% but it will be done at an average market price of RM2.80, its managing director Datuk Lin Yun Ling said.
He said: “Based on the current share price of Litrak at around RM2.80 now, we will have a rate of return of between 17% and 18%, which we think is a good investment.
“At the current price, it is something we would like to do - increasing our stake. But if it goes up to RM5, we will stop and think about it."
Speaking to reporters after the company's AGM in Shah Alam on Jan 12, Lin said Gamuda, which was the single largest shareholder with a 38.44% stake in Litrak, had recently acquired an additional 1.5% stake.

On the outlook for the current financial year ending July 31, 2006, Lin warned that its net profit was expected to drop by 30% from RM265.78 million last year, as reflected by the similar drop in the first quarter.
However, he expected Gamuda to see more overseas contracts flowing in to replenish its existing order book to overcome setbacks faced in FY06.
He said: "What happened this year was a reflection of events that took place more than two years ago where jobs don’t get implemented as planned. However, we have doubled our efforts to get ready for the overseas markets.

“You can see from the results and the share price, we are not exactly growing as we would like. But the management is quite excited about prospects for this calendar year.”
Last year, Gamuda's share price hit the year’s low at RM3.12 on Dec 28 after analysts downgraded the counter on less-than-optimistic earnings outlook following a 33.44% fall in 1Q profit to RM46.6 million from RM70.02 million in the previous corresponding period.
Lin said Gamuda was confident of "jobs flowing in from overseas at more rapid pace". The group has been invited or tendered for overseas infrastructure jobs worth over RM20 billion.
He said Gamuda had been pre-qualified and invited for mega construction projects in the Middle East, Indo-China and Thailand.

“Given the slimmer margins overseas, we expect to at least double our turnover to be able to make the construction profits that we are used to make in our good years,” Lin said.
Together with recently secured two new projects in the Middle East, its current order book stood at RM3.8 billion.

Lin said it also hoped to secure overseas jobs for build-operate-transfer jobs and property development this year.
On its proposed acquisition of another 10% stake in Syarikat Pengeluar Air Selangor Holdings Bhd, he said the price tag of RM135 million was “not unfairly high”. He said the water concessionaire was expected to give a return on investment of above 16%.

posted by gsg @ 9:47 PM