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Friday, May 25, 2007

LITRAK - Q4/07 Results Commentary

This evening, LITRAK - my favorite stock - announced its highly anticipated results for Q4/07. Since LITRAK's financial year ends 31 March, this result is really in respect of 1 Jan 07 - 31 Mar 07 period, i.e. it should reflect the full impact of the toll rate hike on 1 Jan 2007.

Q4/07 Income Statement


1. Q4/07 EPS of 9.1 sen has more than doubled Q4/06 EPS of 4.3 sen. On the surface, this is good news!

2. However, it is boosted by one-time realized gain by its subsidiary amounting to $11.3M, or approximately 2.3 sen. Excluding that, the EPS is 9.1 - 2.3 = 6.8 sen only, of just 54% increase over Q4/06 EPS. Personally, it is marginally dissappointing, as I had hoped to see something higher, although 54% increase in PAT is normally a good result.

3. A possible reason for the smaller increase is due to lower than expected increase in revenue, i.e. lower traffic volume. My rough estimate indicates that this could be around 26% reduction, or say a quarter, compared to same period last year. In a sense, this is not completely unexpected, as this is only the first quarter after the implementation of the toll-rate hike. I expect traffic volume to gradually increase over time, as more of the public accepts the toll-rate hike, i.e. I don't expect this to be a permanent reduction, but only a temporary problem.

4. It is also unclear if the government compensation of $150M payable over 4 year period from 2007-2010 has been included in the revenue above. My belief is that it is unlikely, as there is no direct mention in the notes, and it does not appear in the accounts, based on the size of the numbers reported. The amount per quarter is quite significant, approximately 1.9 sen EPS per quarter.

5. Maintenance expenses have also increased slightly from $0.8M to $2.6M. Perhaps due to one-time increase due to toll-hike change? Needs monitoring.

6. If one assumes that:
- FYE 2008 traffic volume improves slightly to say 80% (instead of 74%) of pre-toll-hike levels
- 90% of the revenue increase from the toll hike flows through to profit
- $37.5M government compensation payment per annum,
- otherwise, the business remains largely unchanged, then,
my estimate of 2008 EPS is around $0.31.
As traffic volume improves, I expect future EPS to grow higher than $0.31.

7. If one uses a reasonable P/E range of say 15-18, then, this suggest that a fair value for LITRAK may be around $4.7 to $5.6 within the next 2 years. If so, this would be equivalent to a potential upside of 22% to 46% from today's closing price of $3.82.

Q4/07 Balance Sheet


1. Total borrowings (short term + long term) at 31/3/07 = $890M. The equivalent on 31/12/06 (not shown above) is $99M+$905M = $1,004M. This represents a significant reduction in total borrowings by $114M in just 3 month period. This is comforting.

2. The reduction in total equity is largely due to capital repayment and dividend payments in 2006 of $122M and $35M respectively. Otherwise, everything else seems ok.

Q4/07 Cash Flow


1. Nice 12 month operating cashflow of $306M. Given that this only includes 1 quarter of the higher toll rates, I expect FYE 2008 cashflow next year to be even higher, from having 4 quarters of higher toll rates, government compensation, as well as expectation of slowly increasing traffic volume effects.

2. LITRAK continues to repay its loans, which is a prudent and responsible thing to do. I like this. In fact, in the past, LITRAK M.D. has indicated that they intend to fully repay their loans in 8 years time. Looking at the above, they certainly have the cash-flow to do so. In fact, maybe even much sooner than 8 years if they really want to. However, I suspect LITRAK wants to share the cashflows with the shareholders, at least with higher dividend payments, and possibly even more capital repayments over the next 8 years.


LITRAK's latest Q4/07 results are within my personal expectations. There is a slight dissappointment with traffic volume and revenue, but this is not entirely unexpected as this is only the first quarter of implementation of the toll-rate hike. Overall, I still like what I am seeing very much, and would hold on to my LITRAK purchase. If Mr Market wants to be irrational and provides me with an opportunity to buy at discounted prices, I intend to oblige him and purchase more, as I believe it still has a nice potential upside from its current price of $3.82.

Disclaimer: I own LITRAK and it is my largest holding at the time of writing. Do read my previous post on LITRAK for context. Bear in mind I could be biased, and I could be wrong in my analysis. Naturally, I also reserve the right to change my mind in future without notice. Therefore, I strongly urge you to use your own judgement, and always remember that whenever you invest (buy, hold, sell), you do so at your own risk.

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