This article first appeared in The Edge Financial Daily, on October 9, 2015.

Lingkaran Trans Kota Holdings Bhd

LITRAK (Fundamental: 2.0/3.0, Valuation: 1.7/3.0) is the concessionaire for one of Klang Valley’s busiest urban highways, the Damansara-Puchong Expressway (LDP). It also holds a 50% stake in the SPRINT Expressway concessionaire. 

Its shares have fared very well amid the broader market selloff, gaining 43.4% year-to-date based on the current price of RM5.02. This underscores the company’s defensive qualities and appeal in times of market volatility. Its earnings have high visibility and predictability with the prospects for rising yields.

Litrak’s earnings grew at a CAGR of 9.9% from FYMar2010 to FY2015 with net profit hitting a high of RM137.9 million in the latest financial year.

Average weekday traffic volume has shown steady, if not exciting, growth — roughly 1.4% and 3.7% per annum for LDP and SPRINT, respectively, between 2011 and 2015. Both concessions have pre-determined toll hikes. Whilst there have been incidences of delays, the government has made good the compensation to the company, so far.

Its concession for LDP will only end in August 2030. Things have also turned around for SPRINT, which recorded pre-tax profit of RM5.2 million in 1QFY2016, thanks to the toll rate hike in January 1, 2015, for the Damansara and Kerinchi Links.

This boosted Litrak’s overall earnings for the quarter, up 23.8% y-y to RM43.5 million. The steady growth in earnings and cashflow generation should translate into gradually higher dividends.

Litrak generated positive annual free cash flow, ranging from RM177 million to RM212 million in the past five years. 

Dividends were raised from 17 sen per share in FY2010-FY2014 to 20 sen per share in FY2015. This translates into a payout ratio of 75% and gives shareholders a higher than market average yield of 4.0%. 

An interim dividend of 15 sen per share for FY2016 was paid in September. Total dividends for FY2016 and going forward could see further increases, in view of the scheduled toll rate hike of 47% for LDP, due in January 2016.