KUCHING: The toll concessionaires’ industry is expected to enjoy better times ahead as the time is ripe for a toll hike as rates on 10 highways are due for review.
STRONG TRAFFIC VOLUMES: The strong traffic volumes in major highways coupled with a toll hike if initiated will benefit highways operators namely PLUS and Litrak which could contribute positively to their cash flows.
Maybank Investment Bank Bhd (Maybank) in a research report cited that the 10 highways are North South Expressway (NSE), New Klang Valley Expressway (NKVE), Federal Highway R2, Subang-Klang (FHR2), Penang Bridge, SPRINT-Kerinchi, Damansara & Penchala Links, Sungai Besi Expressway, New Pantai Expressway, Kajang Ring Road, Ampang Elevated Highway and East Coast Expressway 1 (ECE1).
It noted that NSE was scheduled for a 10 per cent rate hike in 2008 but was delayed by two years with an estimated RM375 million government compensation of which RM278 million has been paid.
Meanwhile, the research firm stated that ECE1 was due for its toll review of 10 per cent this year. The scheduled rate for the ECE1 was lower at 13.2 sen per km for a Class One vehicle against NSE’s 15 sen per km.
On the other hand, Maybank observed that the one-year reprieve for eight intra-urban highways had ended. The toll revision, which is due in 2009 were delayed by a year.
The highways involved were PLUS’ NKVE and FHR2, LITRAK-Gamuda’s SPRINT (Kerinchi Link and Damansara Link), IJM’s Besraya and NPE, SILK’s Kajang Ring Road, Prolintas’ Ampang Elevated and UEM’s Penang Bridge.
Besides that, SPRINT’s third link (Penchala Link) was also scheduled for a toll revision this year.
In the meantime, the research firm observed that the review of toll rates on the affected highways, and findings of a commissioned study on the country’s toll rate structure, supposed to be unveiled in December 2009 might be presented to the Cabinet soon.
Thus, Maybank believed that any decision on the toll rates will not be finalised until at least early February due to the government’s careful deliberation on the issue.
It pointed out that the government has to find a balance between the impact of toll hikes on the broader economy and reducing subsidies to curb the budget deficit if it absorbed the toll increases.
Therefore, given the healthy traffic volumes, the research firm remained confident of strong cash flows generated by PLUS Expressway Bhd (PLUS) and Litrak Holdings Bhd (Litrak).
Apart from that, Maybank also believed that the government’s compensation to toll concessionaires will continue.
It noted that PLUS’ compensation from the government was estimated to total about RM190 million for 2009 with RM92.7 million paid whilst compensation from SPRINT totaled RM30 million.
Based on the research firm projection of 2 per cent traffic growth for PLUS’ NSE and 3 per cent for Litrak’s SPRINT in 2010, it estimated that the combined compensation could total about RM240 million in 2010.
At the same time, it forecasted that dividend per share of a single-tier of 16 sen per share for PLUS and Litrak implied decent yields of 4.9 per cent and 5.7 per cent respectively.
Hence, based on discounted cash flow (DCF) valuation method, it derived a target price of RM4.20 per share for PLUS and RM3.55 per share for Litrak.