Maybank IB Research retains Buy on Litrak

Police road blocks on LDP highway near Bandar Puchong Jaya on day 29 of MCO and day 1 of Phase 3, Wednesday, April 15, 2020. RAJA FAISAL HISHAN/The Star

KUALA LUMPUR: Maybank Investment Bank Research is retaining its Buy call on highway operator Lingkaran Trans Kota (Litrak) after cutting traffic forecasts which led to lower earnings forecasts and discounted cashflow target price (TP).

It said on Wednesday it has reduced the TP from RM5.21 to RM5.51, but this is still 24% above the last closing price of RM4.16.

With most businesses resuming since May 4 and schools fully restarting Wednesday, it thinks that traffic at both the LDP and SPRINT will continue to recover, though it does not believe that they will return to their pre-MCO levels under the “new normal”.

“At our revised forecasts, Litrak still offers a decent 4.81% dividend yield, 215bps above 10Y-MGS’s 2.66%. Its cashflow remains very much intact. Litrak is one of our conviction dividend-yield basket picks, ” it said.

Maybank Research said traffic at both the LDP and SPRINT were not spared from Malaysia’s MCO imposed since March 18, falling by approximately 85% at the early phase.

Traffic recovered as the country moved into CMCO phase (from May 4), but it was still about 50% down.

At the current RMCO phase (from June 10), traffic continues to recover, but it remains lower than pre-MCO levels – about 10% below, per Gamuda in its 3QFY20 results briefing.

“Our revised forecasts input a 12% fall in traffic in FY21E at both the LDP and SPRINT, and recovering by 18%/15% respectively in FY22E, but longer term volume does not return to FY19’s levels.

“This leads to a 28% cut in our FY21E earnings, -9% for FY22E; and DCF-TP (-6 sen).

“Litrak has consistently paid a 25 sen DPS p.a. in FY16-20, but we think FY21 will take a breather – yet, at our 20 sen for FY21E (54% DPR; FY20: 51%), the yield is a decent 4.8%.

“Despite the Covid-19 setbacks, both LDP and SPRINT’s cashflows are intact. A catalyst is a refinancing of their existing debts under current low interest rate environment, ” it said.

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