Reaffirming its buy on PLUS with a target price of RM3.85, MIDF Research said the growing population warranted a fourth lane, adding that PLUS was sensibly planning ahead as there was an expectation of a continuing population growth in the catchment area of the proposed road works.
“The population of Shah Alam has grown over the past five years at an estimated CAGR (compound annual growth rate) of 11.8%, where currently it has an estimated population of 620,000.
“The current population in Rawang is estimated to be 120,000. It is possible that the population of these two ‘centres’ could grow at an even faster rate with the continuing ‘exodus’ of population to the outer part of Greater KL due to the rising house prices in KL and the expected new development of Sungai Buloh,” it said.
ECM Libra Investment Research has an unchanged target price of RM3.98 for PLUS based on a dividend discount model (cost of equity of 6.2%, long-term growth rate of 1.5%) pending more details on the funding structure of the fourth lane widening works.
“We expect PLUS to achieve a 75% dividend payout ratio in FY10, in line with its headline KPIs. We like PLUS for its (1) attractive dividend yields, (2) 37.9% earnings growth in FY2011, and (3) potential growth via acquisitions,” it said.
Kenanga Investment Bank Bhd Research raised its target price for PLUS to RM4.63 from RM4.47 based on a 20% discount to its discounted cash flow (DCF) valuation.
“We upgraded our FY10 and FY11 forecasts by 3% as we raised our traffic assumption from 2% to 4% for FY10. However, we do not impute any impact from the lane-widening project until further announcement on the financing arrangement,” it said.
AmResearch said PLUS’ latest move was to alleviate congestion along select stretches of its highways — in addition to increasing lane capacity to accommodate heavy traffic during holidays and festive periods.
This suggests some upside to the toll concessionaire’s traffic forecast — although positive impact would likely only filter through in two to three years’ time, it said.
The research house was encouraged that PLUS had continued to report improving traffic numbers in the last few months. It said the group recorded robust traffic growth of 9.8% year-on-year during the January-May period.
“This suggests some upside to our FY10F traffic growth assumption of 4% — although we expect some moderation in traffic levels in 2H10 following a high-base effect in 2009.
“We maintain our buy call on PLUS with an unchanged fair value of RM4 per share — pegged to a 15% discount to its DCF value (WACC: 7.5%). This is well supported by strong free cash-flow generation and alluring FY10F-12F yields of 5%-7%,” it said.
AmResearch said the key re-rating catalysts for the stock would include a stronger-than-expected traffic growth trajectory in 2H10; scheduled tariff hike in 2011F; and potentially value-accretive investments abroad.
Yesterday, PLUS closed one sen higher at RM3.40 with 2.83 million shares done.
This article appeared in The Edge Financial Daily, July 8, 2010.
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