PETALING JAYA: Maybank Investment Bank Research (Maybank IB) is retaining its “buy” call on highway operator Lingkaran Trans Kota (Litrak) despite cutting traffic forecasts, which led to lower earnings forecasts and the discounted cashflow target price (TP).
With most businesses resuming since May 4 and schools fully restarting yesterday, the bank thinks that traffic at both the Damansara-Puchong expressway (LDP) and SPRINT Highway will continue to recover, though they may not return to their pre-movement control order (MCO) levels under the new normal.
That said, based on its revised forecasts, Litrak still offers a decent 4.81% dividend yield, 215 basis points (bps) above a 10 year-Malaysian Government Securities ’s 2.66%.
“Its cashflow remains very much intact. Litrak is one of our conviction dividend-yield basket picks, ” it said in a report yesterday.
The bank said it has reduced the TP from RM5.21 to RM5.51, but this is still 24% above the RM4.16 closing price at the time of its report.
Shares of Litrak closed two sen down to RM4.14 yesterday.
Maybank Research said traffic at both the LDP and SPRINT were not spared from the MCO imposed since March 18, falling by approximately 85% at the early phase.
Traffic recovered as the country moved into Conditional MCO phase (from May 4), but it was still about 50% down.
At the current Recovery MCO phase (from June 10), traffic continues to recover, but it remains lower than pre-MCO levels – about 10% below, per Gamuda estimates in its recent 3Q20 results briefing.
Gamuda, directly and via Litrak, controls the LDP. “Our revised forecasts input a 12% fall in traffic in FY21 at both the LDP and SPRINT, and recovering by 18%/15% respectively in FY22, but longer-term volume does not return to FY19’s levels, ” it said.
This, the bank said has led to a 28% cut in its FY21 estimated earnings.
“Litrak has consistently paid a 25 sen dividend per share per annum in FY16-20, but we think FY21 will take a breather – yet, at our 20 sen for FY21E, 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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