PETALING JAYA: TA Securities views the toll hike freeze on 21 highways across the country next year as mildly positive for toll concessionaires, as the operators can avoid traffic reduction arising from higher toll rates imposed on road users.
In the past, toll highway operators typically experienced a slight decline in traffic volume immediate after a toll rate increase, followed by a gradual recovery in traffic volume as demand for toll roads is largely inelastic, it said in a note last Friday.
Additionally, it said, the toll operators will receive compensation from the government to cover the difference between entitled toll rates under the concession agreements and the actual toll rates charged on end-users.
However, on a broader outlook, TA Securities said, the toll concessionaires are still surrounded with uncertainties following the change of government, noting the Pakatan Harapan government is studying the best method to fulfil its 14th general election manifesto promise.
Last Thursday, the government announced its decision to freeze all toll hikes on 21 highways for all vehicles which are eligible for an increase in 2019, as well as a toll increase freeze for buses on eight highways, and the abolishment of motorcycle tolls.
Earlier this month, the Works Ministry said it would appoint an independent auditor in January to assist the government in preparing data analysis and recommendations, including reduction of toll rates in the short, medium and long term, and eventually abolishing toll collection on all expressways.
The analysis of the results is expected to be ready by May.
“With a reduced upside after a rebound in share price, we downgrade Lingkaran Trans Kota Bhd (Litrak) from ‘buy’ to ‘hold’, with an unchanged target price of RM4.54,” TA Securities said.
Separately, MIDF Research said it maintained its “buy” call for Litrak with an unchanged target price of RM4.92 per share, saying the toll operator is still a defensive player with decent dividend yield of 7.3% for financial year 2020 (FY20).
Litrak, which operates the Damansara-Puchong Highway (LDP) and the Sprint Highway, closed unchanged at RM4.11 on 33,800 shares done last Friday.
MIDF Research said that following the freeze on toll rate increases, compensation by the government to Sprint will rise as the Penchala toll plaza is due for a rate hike in next year.
MIDF Research estimated that the overall compensation to Litrak is set to increase to above RM170 million in FY19 and FY20 while earnings contribution from the concessionaires will be unchanged.
However, it said there will be no changes in compensation for the LDP as the toll rates remain unchanged.
“As our current traffic volume and earnings forecasts have taken into account the freeze of toll hikes on intra-city tolls in the country for 2019 as per the Budget 2019 announcement, we are maintaining our earnings estimates at this juncture,” MIDF Research added.
Source: The Sun Daily