Small/Mid Cap Strategy and Stock Picks - the DBS Vickers ...
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Small/Mid Cap Strategy and Stock Picks - the DBS Vickers ...

Small/Mid Cap Strategy and Stock Picks - the DBS Vickers ... Small/Mid Cap Strategy and Stock Picks - the DBS Vickers ...

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Regional Small/Mid Cap Strategy Q2 2008 Litrak Bloomberg: LTK MK | Reuters: LTKH.KL BUY RM3.58 KLCI : 1,229.95 Price Target : 12-Month RM 4.30 Potential Catalyst: Potential capital repayment and higher dividends Analyst Wong Ming Tek 603 2711 0956 mingtek@hwangdbsvickers.com.my Price Relative 4.50 4.00 3.50 3.00 2.50 2.00 RM Relative Index 2004 2005 2006 2007 2008 Litrak (LHS) Relative KLCI INDEX (RHS) 204 184 164 144 124 104 84 64 Potential yield kicker Story: We foresee improving outlook for higher dividend. Under the new tax structure, companies can declare higher dividends without having to accumulate section 108 tax credit. In our opinion, there is also capacity to undertake more special distributions. Point: Based on our estimates, the new tax structure can result in doubling of dividend payments to RM0.20 from RM0.10 currently. The potential dividend increase to this level is sustainable with the Group’s strong operating cashflow. This is supported by the high traffic road alignment of Damansara Puchong Highway. Meanwhile, a special distribution can result in a onetime payout of RM0.90-RM0.95/share, in our opinion. Relevance: We reiterate our Buy call on Litrak. Our RM4.30 price target is based on a 15% discount to DCFvalue of RM5.05. The higher dividends may reduce the stock’s discount to DCF-value. Forecasts and Valuation FY Mar (RM m) 2007A 2008F 2009F 2010F Turnover 256 286 292 304 EBITDA 208 237 252 253 Pre-tax Profit 130 147 159 167 Net Profit 100 100 111 115 Net Pft (Pre Ex.) 89 100 111 115 EPS (sen) 20.6 20.5 22.8 23.6 EPS Pre Ex. (sen) 18.2 20.5 22.8 23.6 EPS Gth Pre Ex (%) 19 13 11 3 Diluted EPS (sen) 18.2 20.5 22.8 23.6 Net DPS (sen) 7.2 7.2 7.2 7.2 BV Per Share (sen) 174.0 187.3 202.9 219.2 PE (X) 17.5 17.5 15.8 15.3 PE Pre Ex. (X) 19.7 17.5 15.8 15.3 P/Cash Flow (X) 11.9 11.5 11.3 10.5 EV/EBITDA (X) 12.2 10.0 8.9 8.2 Net Div Yield (%) 2.0 2.0 2.0 2.0 P/Book Value (X) 2.1 1.9 1.8 1.6 Net Debt/Equity (X) 0.9 0.7 0.5 0.3 ROAE (%) 11.5 11.4 11.7 11.2 Consensus EPS (sen): 23.1 27.4 33.3 Sector : Concessionaire Principal Business: Litrak is involved in the design, construction, operation and maintenance of the Damansara Puchong Highway. At A Glance Issued Capital (m shrs) 492 Mkt. Cap (RMm/US$m) 1,762 / 551 Major Shareholders Gamuda Bhd (%) 44.8 Employment Provident Fund (%) 5.8 Free Float (%) 49.0 Avg. Daily Vol.(‘000) 394 Page 42 www.dbsvickers.com Refer to important disclosures at the end of this report

Regional Small/Mid Cap Strategy Q2 2008 Litrak Income Statement (RM m) Balance Sheet (RM m) FY Mar 2007A 2008F 2009F 2010F FY Mar 2007A 2008F 2009F 2010F Turnover 256 286 292 304 Net Fixed Assets 4 2 1 0 Cost of Goods Sold (50) (54) (55) (59) Invts in Associates & JVs 296 276 265 247 Gross Profit 206 232 237 244 Other LT Assets 1,564 1,523 1,502 1,479 Other Opng (Exp)/Inc (5) (6) (7) (7) Cash & ST Invts 110 127 247 341 Operating Profit 201 226 230 237 Other Current Assets 45 49 54 59 Other Non Opg (Exp)/Inc 0 0 0 0 Total Assets 2,018 1,978 2,068 2,126 Associates & JV Inc (20) (20) (11) (18) Net Interest (Exp)/Inc (62) (58) (60) (52) ST Debt 93 93 93 93 Exceptional Gain/(Loss) 11 0 0 0 Other Current Liab 54 58 63 68 Pre-tax Profit 130 147 159 167 LT Debt 793 654 636 577 Tax (29) (47) (48) (52) Other LT Liabilities 228 257 285 316 Minority Interest 0 0 0 0 Shareholder’s Equity 850 915 992 1,072 Preference Dividend 0 0 0 0 Minority Interests 0 0 0 0 Net Profit 100 100 111 115 Total Cap. & Liab. 2,018 1,978 2,068 2,126 Net Profit before Except. 89 100 111 115 EBITDA 208 237 252 253 Non-Cash Wkg. Capital (9) (9) (9) (9) Net Cash/(Debt) (776) (620) (482) (328) Sales Gth (%) 5.3 11.8 2.0 4.0 EBITDA Gth (%) 2.9 14.2 6.0 0.8 Opg Profit Gth (%) 6.7 12.5 1.8 3.2 Net Profit Gth (%) 35.0 (0.1) 11.0 3.4 Effective Tax Rate (%) 22.6 31.9 30.0 31.0 Cash Flow Statement (RM m) Rates & Ratio FY Mar 2007A 2008F 2009F 2010F FY Mar 2007A 2008F 2009F 2010F Pre-Tax Profit 130 147 159 167 Gross Margins (%) 80.5 81.2 81.1 80.4 Dep. & Amort. 27 32 33 34 Opg Profit Margin (%) 78.5 79.0 78.8 78.2 Tax Paid (11) (18) (20) (21) Net Profit Margin (%) 39.3 35.1 38.2 37.9 Assoc. & JV Inc/(loss) 20 20 11 18 ROAE (%) 11.5 11.4 11.7 11.2 Chg in Wkg.Cap. 21 0 0 0 ROA (%) 4.9 5.0 5.5 5.5 Other Operating CF 131 79 60 53 ROCE (%) 9.2 9.7 10.7 11.4 Net Operating CF 306 260 243 251 Div Payout Ratio (%) 35.0 35.1 31.6 30.6 Capital Exp.(net) (17) (10) (10) (10) Net Interest Cover (x) 3.2 3.9 3.8 4.5 Other Invts.(net) 13 0 0 0 Asset Turnover (x) 0.1 0.1 0.1 0.1 Invts in Assoc. & JV 0 0 0 0 Debtors Turn (avg days) N.M. N.M. N.M. N.M. Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 577.4 598.0 640.6 643.1 Other Investing CF 7 6 3 6 Inventory Turn (avg days) N.M. N.M. N.M. N.M. Net Investing CF 3 (4) (7) (4) Current Ratio (x) 1.1 1.2 1.9 2.5 Div Paid (35) (35) (35) (35) Quick Ratio (x) 1.1 1.2 1.9 2.5 Chg in Gross Debt (101) (139) (19) (59) Net Debt/Equity (X) 0.9 0.7 0.5 0.3 Capital Issues 7 0 0 0 Capex to Debt (%) 1.9 1.3 1.4 1.5 Other Financing CF (188) (64) (63) (59) N. Cash/(Debt)PS (sen) (158.8) (126.8) (98.5) (67.1) Net Financing CF (316) (238) (117) (153) Opg CFPS (sen) 58.3 53.1 49.7 51.3 Net Cashflow (7) 18 119 95 Free CFPS (sen) 59.1 51.1 47.7 49.3 Quarterly / Interim Income Statement (RM m) FY Mar 4Q2007 1Q2008 2Q2008 3Q2008 Turnover 70 72 75 74 Cost of Goods Sold (14) (16) (17) (18) Gross Profit 56 57 58 56 Other Oper. (Exp)/Inc 13 2 3 2 Operating Profit 69 59 61 58 Other Non Opg (Exp)/Inc 0 0 0 0 Associates & JV Inc (6) (5) (6) (7) Net Interest (Exp)/Inc (17) (17) (16) (16) Exceptional Gain/(Loss) 0 0 0 0 Pre-tax Profit 46 37 38 36 Tax (2) (12) (12) (11) Minority Interest 0 0 0 0 Net Profit 45 25 26 24 Net profit bef Except. 45 25 26 24 Sales Gth (%) 11.6 4.1 3.1 (1.4) Opg Profit Gth (%) 40.6 (14.7) 2.9 (4.3) Net Profit Gth (%) 128.0 (43.3) 3.4 (6.8) Gross Margins (%) 80.2 78.0 77.7 75.5 Opg Profit Margins (%) 99.3 81.3 81.1 78.8 Net Profit Margins (%) 64.0 34.8 34.9 33.0 Source: Company, DBS Vickers Page 43

Regional <strong>Small</strong>/<strong>Mid</strong> <strong>Cap</strong> <strong>Strategy</strong> Q2 2008<br />

Litrak<br />

Bloomberg: LTK MK | Reuters: LTKH.KL<br />

BUY RM3.58 KLCI : 1,229.95<br />

Price Target : 12-Month RM 4.30<br />

Potential Catalyst: Potential capital repayment <strong>and</strong> higher dividends<br />

Analyst<br />

Wong Ming Tek 603 2711 0956<br />

mingtek@hwangdbsvickers.com.my<br />

Price Relative<br />

4.50<br />

4.00<br />

3.50<br />

3.00<br />

2.50<br />

2.00<br />

RM<br />

Relative Index<br />

2004 2005 2006 2007 2008<br />

Litrak (LHS) Relative KLCI INDEX (RHS)<br />

204<br />

184<br />

164<br />

144<br />

124<br />

104<br />

84<br />

64<br />

Potential yield kicker<br />

Story: We foresee improving outlook for higher<br />

dividend. Under <strong>the</strong> new tax structure, companies can<br />

declare higher dividends without having to accumulate<br />

section 108 tax credit. In our opinion, <strong>the</strong>re is also<br />

capacity to undertake more special distributions.<br />

Point: Based on our estimates, <strong>the</strong> new tax structure<br />

can result in doubling of dividend payments to RM0.20<br />

from RM0.10 currently. The potential dividend increase<br />

to this level is sustainable with <strong>the</strong> Group’s strong<br />

operating cashflow. This is supported by <strong>the</strong> high traffic<br />

road alignment of Damansara Puchong Highway.<br />

Meanwhile, a special distribution can result in a onetime<br />

payout of RM0.90-RM0.95/share, in our opinion.<br />

Relevance: We reiterate our Buy call on Litrak. Our<br />

RM4.30 price target is based on a 15% discount to DCFvalue<br />

of RM5.05. The higher dividends may reduce <strong>the</strong><br />

stock’s discount to DCF-value.<br />

Forecasts <strong>and</strong> Valuation<br />

FY Mar (RM m) 2007A 2008F 2009F 2010F<br />

Turnover 256 286 292 304<br />

EBITDA 208 237 252 253<br />

Pre-tax Profit 130 147 159 167<br />

Net Profit 100 100 111 115<br />

Net Pft (Pre Ex.) 89 100 111 115<br />

EPS (sen) 20.6 20.5 22.8 23.6<br />

EPS Pre Ex. (sen) 18.2 20.5 22.8 23.6<br />

EPS Gth Pre Ex (%) 19 13 11 3<br />

Diluted EPS (sen) 18.2 20.5 22.8 23.6<br />

Net DPS (sen) 7.2 7.2 7.2 7.2<br />

BV Per Share (sen) 174.0 187.3 202.9 219.2<br />

PE (X) 17.5 17.5 15.8 15.3<br />

PE Pre Ex. (X) 19.7 17.5 15.8 15.3<br />

P/Cash Flow (X) 11.9 11.5 11.3 10.5<br />

EV/EBITDA (X) 12.2 10.0 8.9 8.2<br />

Net Div Yield (%) 2.0 2.0 2.0 2.0<br />

P/Book Value (X) 2.1 1.9 1.8 1.6<br />

Net Debt/Equity (X) 0.9 0.7 0.5 0.3<br />

ROAE (%) 11.5 11.4 11.7 11.2<br />

Consensus EPS (sen): 23.1 27.4 33.3<br />

Sector : Concessionaire<br />

Principal Business: Litrak is involved in <strong>the</strong> design, construction,<br />

operation <strong>and</strong> maintenance of <strong>the</strong> Damansara Puchong Highway.<br />

At A Glance<br />

Issued <strong>Cap</strong>ital (m shrs) 492<br />

Mkt. <strong>Cap</strong> (RMm/US$m)<br />

1,762 / 551<br />

Major Shareholders<br />

Gamuda Bhd (%) 44.8<br />

Employment Provident Fund (%) 5.8<br />

Free Float (%) 49.0<br />

Avg. Daily Vol.(‘000) 394<br />

Page 42<br />

www.dbsvickers.com<br />

Refer to important disclosures at <strong>the</strong> end of this report

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