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Litrak awaiting the next catalyst

Lingkaran Trans Kota Holdings Bhd (May 7, RM3.97)
Maintain hold with target price RM4.30:
Traffic on Lebuhraya Damansara Puchong (LDP) has been higher than our forecast. We therefore raise our traffic assumption for FY12, but marginally lower our forecasts for future years after considering new competition. This raises highway development amortisation, resulting in our net profit forecasts for FY12 to FY14 being lowered by 6% to 8% per year.

The impact on our discounted cash flow-based (DCF) target price is muted, however, as the higher FY12 traffic assumption offsets lower traffic forecasts for the future years, and as the raised amortisation charge in the profit and loss is a non-cash flow item.

For the 9MFY12 traffic on the LDP grew slightly below 2% y-o-y, while our forecasts were for a 1.5% contraction for FY12. Actual traffic continues to build post the government's decision to defer a toll rate hike of 31%, due in January 2011; the government is compensating Litrak for this loss of revenue.

We now forecast an average 452,400 vehicles per day (vpd) in FY12 (FY11: 445,710 vpd). For FY13 and beyond, we now impute 1.5% per year growth, tapering to 1% by the end of the concession period in 2030, against 2% per year growth tapering to 1% previously.

Litrak delivered a net profit of RM102 million (+25% y-o-y) for 9MFY12 (1Q: RM37 million, 2Q: RM33 million, 3Q: RM32 million).

Litrak now trades at just 20 sen shy (4.7%) of our RM4.30 target price (based on a DCF of 9.2%).

Together with our 4.1% net dividend yield projection for the next 12 months, total expected return is 8.8%; maintain "hold".

We expect FY13 dividend per share to be flat at 17 sen (net) due to restrictions under the LDP's debt instruments.

The potential takeover of the LDP (and Sprint) by PLUS Expressways Bhd may be the catalyst for a re-rating of Litrak's share price. We hear talks have started. — Maybank IB Research, May 7

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