Highest return on equity over three years, Highest growth in profit after tax over three years: TRANSPORTATION & LOGISTICS: Lingkaran Trans Kota Holdings Bhd - Urbanisation Sustains Steady Earnings Growth

This article first appeared in The Edge Malaysia Weekly, on September 30, 2019 - October 06, 2019.
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The rising traffic volume in the Klang Valley speaks well for Lingkaran Trans Kota Holdings Bhd’s (Litrak) earnings growth over the past few years.

Litrak operates several intra-Kuala Lumpur toll roads. It wholly owns the Damansara-Puchong Expressway (LDP) and holds a 50% stake in Sistem Penyuraian Trafik KL Barat Sdn Bhd (SPRINT). SPRINT is the concession holder of the 26.5km SPRINT highway  that comprises three links — Damansara Link, Kerinchi Link and Penchala Link. The first two links’ concessions end in 2034 while Penchala’s ends in 2031. LDP’s 34-year concession ends in 2030.

Urban development has helped drive the steady growth of the company’s toll collection.

Litrak’s profit after tax rose to RM228.6 million in the financial year ended March 31, 2018 (FY2018), from RM221 million in FY2017 and RM174.1 million in FY2016. The toll road operator posted a PAT of RM137.9 million in FY2015, which translates into three-year compound annual growth rate of 14.8%.

However, Litrak saw a slight dip in its toll collection in FY2018, down nearly 2% year on year to RM523.9 million.

Litrak also commanded an admirable return on equity (ROE) over the years. Its ROE came in at 29.71% in FY2018, 33.42% in FY2017 and 30.4% in FY2016.

The group has been able to maintain a dividend payout of 25 sen per share in FY2019, similar to the payout in previous financial years. It has maintained its dividend payout ratio of above 50% over the years, with 57.73% in FY2018 and 59.49% in FY2017.

Highway operators do face competition nowadays. In its 2019 annual report, Litrak points out that both LDP and the SPRINT highway saw a drop in average weekday tollable traffic following the opening of the Duta-Ulu Kelang Expressway Phase 2 in November 2017. On top of that, there is a continuing migration of toll-paying highway users to alternative public transport modes such as mass rapid transit and light rail transit.

Litrak’s board has accepted the offer by the Ministry of Finance to take over its toll concessions for RM2.34 billion for LDP and RM870 million for SPRINT.

Should the proposed takeover materialise, the group will become cash-rich with no core business.

“Consequently, the company will be deemed a Practice Note 16 cash company, according to Bursa Malaysia’s Main Market Listing Requirements. As such, the board will have to decide on the utilisation of the proceeds derived from the sale of LDP and the SPRINT highway and reassess the future direction of the company,” says chairman Tan Sri Ambrin Buang in the annual report. “The board is currently assessing the options available to the company and our shareholders.”

Prior to the takeover offer, the government had announced a freeze on toll rates for all 21 highways — which were supposed to be eligible for an increase this year — to alleviate the burden of the rising cost of living of the people.

Accordingly, toll rates at the LDP, Kerinchi Link and Penchala Link will remain unchanged. Compensation payable by the government will be determined in accordance with the provisions of the respective concession agreements.