Wednesday May 12, 2010
Analysts bullish about PLUS
By RISEN JAYASEELAN
Decent traffic volume growth, strong cash flows and attractive dividend are some factors
DESPITE all the hoopla surrounding Asas Serba Sdn Bhd and its now well-publicised interest in taking over the toll highway operators, analysts remain positive on the biggest player, PLUS Expressways.
That’s simply because of the basic positive factors in PLUS’ performance, namely decent traffic volume growth, strong cash flows, healthy profit margins and an attractive dividend yield.
To recap, PLUS’ traffic volume in its first quarter ended March 31, 2010 had shot past some analysts’ expectations, at a combined 9.1% year-on-year growth at its North-South Expressway (NSE), North Klang Expressway, Federal Highway Route 2 and the Seremban-Port Dickson Highway.
PLUS had put this down to increased domestic holidaying due to the global financial crisis, the completion of the third-lane widening works and the low base of traffic volumes in the same quarter the previous year.
Hence, analysts said that PLUS has provided guidance that traffic growth for the full year would be in the region of 3%-4% year-on-year, which is above Maybank IB Research’s projection of 2%.
As a result of the strong Q1 volume, Maybank IB has raised PLUS’ traffic growth forecast for FY2010 to 5% from 2%.
Higher traffic growth bodes well for PLUS cash flows, which in turn puts the highway operator in a good position to pay dividends.
PLUS’ FY2009 dividend yield was 5%.
In a report dated May 10, BNP Paribas stated that PLUS’ ongoing debt refinancing plans puts it in a good position to maintain its targeted dividend payout ratio of 75% for 2010, which in turn is one of PLUS’ recently announced key performance indicators.
“We like PLUS for its decent and sustainable (forecast) net dividend yield of 5% to 5.3% in 2010 to 2011,” stated the BNP report.
PLUS recently issued RM1bil in Islamic bonds as part of its debt refinancing. The bonds were issued at an interest rate of 5.9% to refinance existing debt that carries a rate of 6.5%, analysts said.
Meanwhile PLUS has yet to hear from the Government on the latter’s plan for a country-wide restructuring of tolled roads. A study on the domestic toll rate structure was commissioned last year, which should include toll revisions due this year, affecting PLUS’ NSE.
The NSE was due for a 10% toll hike in early-2008 but this has been deferred by two years. It is also due for a 10% toll hike in early-2011. Maybank IB stated that cash compensation for PLUS from the Government remained forthcoming. “We continue to expect no major impact on valuations under any new toll structure,” the research house noted.
Meanwhile BNP wrote that it was of the view that the proposed takeover by Asas Serba of all the toll concessions in Malaysia was “mere talk”.
BNP also said that the RM50bil price tag that Asas Serba might be understating the true cost of acquiring all the highways. A similar view is shared by OSK Research which had stated that since toll operators like Gamuda Bhd and IJM Corp Bhd relied heavily on toll collections, they were unlikely to want to participate in the proposed consortium or would only do so at a very high price.
Analysts also pointed out that the massive amount to be raised via bonds for the entire exercise, at around RM45bil, would be difficult for the market to digest. Furthermore, BNP pointed out that Asas Serba would be hard-pressed to fork out the RM350mil to RM400mil capital expenditure each year that PLUS sets aside for maintenance. And more capex would need to be spent going forward to increase capacity to reduce congestion.