Maybank Investment Bank has maintained a “Buy” recommendation for Lingkaran Trans Kota Holdings Bhd (LITRAK) with a target price of RM4.85 adding that the Amanat Lebuhraya Rakyat (ALR’s) RM3.93billion offer (based on enterprise value) for LITRAK’s two highway concessions, which translates into RM3.15billion in equity value, is fair; the latter at 8% above our equity DCF est. (ke: 8.3%).
The investment Bank said that LITRAK’s share of the equity value (based on its 100% holding in LDP, 50% in SPRINT) is an RM2.7billion or MYR5.06/share, a bumper 26% upside from yesterday’s close and 4% above our MYR4.85 DCF-TP which we maintain for now.
LITRAK has received an offer from ALR to acquire its two highway concessionaires – LDP, SPRINT – for MYR3.93billion cash, based on enterprise value.
ALR is a public limited company; its shareholders are essential ‘stewards’ to facilitate the restructuring of highway concessions; thus, not profit-motivated.
The concessions will return to the Government as soon as ALR’s debts to take over the concessions and any refinancing of existing concession debts is repaid. LITRAK’s RM2.7billion share of equity value is equivalent. to RM5.06/share.
On what the deal means for Gamuda, the investment bank said that the internal intention is to return all cash proceeds that LITRAK will receive, back to LITRAK’s shareholder’s post-deal completion.
It said that this means a capital return of up to MYR5.06/share in 3Q2022, based on Gamuda’s target for deal completion in 3 months. “Post deal completion, LITRAK will become a ‘shell’ holding company with no core business/operation; it will either have to find a new business to maintain its listing status, or Gamuda may sell the Company (LITRAK) off, “It said.
For LITRAK, the investment bank said that it means an unlocking of value-adding that this is a ‘win-win-win’ proposition for LITRAK (fair offer), the Government (savings in toll compensation which it will otherwise need to pay), and highway users (certainty of no toll hikes until mid-2032, or even earlier, when the concessions are expected to go back to the Government).
