Lingkaran Trans Kota Holdings Berhad (LITRAK) operates and maintains two tolled highways — Lebuhraya Damansara-Puchong (LDP) and Western Kuala Lumpur Traffic Dispersal Scheme (SPRINT) Highway — in Klang Valley.
Highway concession businesses are not spared by the COVID-19 pandemic as we spend more time at home. As the concessions of these two highways will expire between 2030 and 2034, I was keen to find out more about the long-term sustainability of the company’s business.
Here are five things I learned from the 2020 LITRAK AGM:
1. Revenue decreased 2% year-on-year to RM504 million in 2020. CFO Stephen Low Chee Weng attributed the decline to lower traffic recorded in March when the movement control order (MCO) was implemented on 18 March, which imposed travel restrictions in Malaysia.
In fact, vehicle traffic on LDP has been dropping since 2015 and further declined from 460,000 vehicles in 2019 to 447,000 vehicles in 2020. This was partly due to competition from competing highways and public transportation. Other tolled highways like LRT Kelana Jaya Line and LRT Ampang Line were extended in 2016 and MRT Kajang Line began operating in 2017. Hence, these rail lines serve overlapping road users of LDP.
2. LITRAK’s Q1 2021 quarterly revenue almost halved year-on-year to RM66.7 million as non-essential services completely halted in entire April, adversely affecting traffic volume. Traffic volume on LDP has rebounded to about 5% below pre-MCO levels. Its short-term outlook is mixed — new norms like work-from-home arrangements could result in lower traffic volume. At the same time, LITRAK would benefit as road users opt to drive rather than take public transport to minimise exposure to the virus. Nevertheless, traffic volume along its two highways in 2021 is expected to decline.
3. Minority Shareholder Watch Group (MSWG) pointed out that share of result of an associate increased significantly from RM1.5 million in 2019 to RM18.4 million in 2020. Low explained that this was due to higher revenue arising from full-year government compensation for the revenue loss caused by the deferred toll rates hike in 2019 at one of the plazas.
4. Low responded to shareholder concern that the offers to acquire LDP and SPRINT Highway from the government lapsed in February 2020. A number of shareholders were worried about the company’s business sustainability as the concessions of these two highways will expire between 2030 and 2034. Low replied that these two highways will be handed back to the government without any additional compensation.
The management has no plans to inject new businesses into the group according to Low. The management does not seem very ambitious nor proactive looking beyond the near-term viability of the company. Meanwhile, highway development expenditure will be amortised over the years and zeroised at the end of the concessions.
5. A shareholder asked if the company was interested to buy back shares to enhance shareholder value. Low only mentioned that the company’s cash is reserved to repay the sukuk (sharia-compliant) borrowings and for CAPEX, before it is distributed back to shareholders as dividend. He added that dividend per share may increase from the existing 25 sen upon full repayment of the company’s sukuk borrowings. Dividend yield stood at 6.5% based on LITRAK’s share price of RM3.85 as at 5 November 2020.
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