Toll highway operators top losers on Bursa

25 Feb 2019 / 22:59 H.

PETALING JAYA: Toll highway operators Gamuda Bhd, Lingkaran Trans Kota Holdings Bhd (Litrak) and IJM Corp Bhd were among the top losers on Bursa Malaysia today following news of the government’s plan to take over four highway concessions.

Share prices of Litrak tumbled 9.35% or 43 sen to RM4.17, while Gamuda skidded 5.92% or 18 sen to RM2.86 and IJM was 5.53% or 11 sen lower at RM1.88.

The four highways involved in the takeover talks are the Lebuhraya Damansara Puchong (LDP), Sistem Penyuraian Trafik KL Barat (Sprint), Lebuhraya Shah Alam (Kesas) and Stormwater Management and Road Tunnel (Smart).

According to a statement by the Prime Minister’s Office issued on Saturday, the government has commenced negotiations with Gamuda for the acquisition of toll concessions on four highways in which the company has a majority stake. They are Kesas (70%), Sprint (51.8%), Smart (50%), and Litrak (43.6%). LDP is wholly owned by Litrak. Litrak also owns a 50% stake in Sprint.

IJM operates the Sungai Besi Expressway (Besraya), New Pantai Expressway (NPE) and Kajang-Seremban Highway (Lekas). It is currently constructing the West Coast Expressway.

Meanwhile, Ekovest Bhd, which operates DUKE (Damansara-Ulu Kelang Expressway) and is constructing the Setiawangsa-Pantai Expressway, declined 5.83% or 3.5 sen to 56.5 sen today.

Taliworks Corp Bhd, another toll highway operator, closed 3.93% or 3.5 sen lower at 85.5 sen. It has a 51% stake in the Cheras-Kajang Highway and operates the New North Klang Straits Bypass Expressway.

In a filing with the stock exchangetoday, Gamuda confirmed that it is in talks with the government in relation to the proposed highway takeover.

“As the board of directors of Gamuda have a fiduciary duty to deliver fair and reasonable value to all its shareholders, Gamuda has to ensure that the proposed transaction will be based on market valuation norms and practices.

“Gamuda will make the necessary announcement once there is a material development in relation to the above matter,” it said.

Analysts opined that the takeover plan is a negative for highway operators.

MIDF Research said for Gamuda, the concession segment made up about 41% of its FY18 pretax profit and it would mean a notable loss of stable recurring income to the group upon full acquisitions.

“We believe the impact to Gamuda’s earnings is net negative, as the move will result in earnings vacuum. However, we opine that it is too early to ascertain the impact, as we are still short on details. On that account, our forecasts on the group earnings remain unchanged until further development on the acquisitions.”

The research house believes that future acquisitions, if implemented, will likely be done in phases. This is in consideration of the cost required, coupled with the government’s priority to rein in its finances.

“We consider the news as a surprise, as it was initially announced by government, that scrapping of tolls nationwide would be deferred until fiscal conditions permit. While we initially aware of the possible takeovers, we think that the move comes sooner than expected. On that note, we believe the news will elevate uncertainties on Gamuda, which we expect will put investors on tenterhooks with overtone of caution.”

It noted that Gamuda’s share price has been on significant uptrend thus far in 2019, which has partially reversed some of its losses in second half 2018. It has recovered by 35.1%, reaching a level beyond its target.

“While our target price remains unchanged, we think the news warrants a downgrade (to neutral) as we incorporate an overhang factor into the share price. At this level, we think the share price is attractive for profit-taking. On the other hand, we suggest investors to track the share price closely, as possible rise in volatility is likely and that will unveil good trading opportunity,” said MIDF.

Similarly, the research house believes the news will elevate uncertainties on Litrak, which it expects will put investors on tenterhookswith overtone of caution. It also reckons that the impact to Litrak’s earnings is net negative, as the move will result in earnings vacuum.

However, MIDF maintained a “buy” call for Litrak with an unchanged target price of RM4.92 per share, explaining that Litrak is still a defensive play with decent dividends yield.

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