PLUS: outperform at RM3.80, fair value of RM4.33

PLUS Expressways Bhd
(Aug 3, RM3.80)
Maintain outperform at RM3.80 with a fair value of RM4.33: We believe PLUS’ 2QFY2012/10 results (due out by end-August) will likely to come in stronger (both year-on-year and quarter-on-quarter), thanks to the encouraging growth registered at its core expressways (consisting of the North-South Expressway, New Klang Valley Expressway, Federal Highway Route 2 and Seremban-Port Dickson Highway) in 2QFY2012/10 (+10.5% y-o-y and 5.8% q-o-q).

Based on an actual traffic volume of 4,069.9 million passenger cars unit per-km registered at PLUS’ core expressways in 2QFY12/10, we believe PLUS will likely register a net profit of RM321.7 million in 2QFY2012/10.

This means PLUS’ 1HFY2012/10 net profit is likely to come in at RM620.8 million, which is 50.6% to 50.7% of our full-year forecast and the full-year market consensus.

While the increase in petrol price will hurt PLUS’s traffic volume, we believe the impact will likely be temporary.

Recall, traffic volume at PLUS’ core expressways contracted by 0.1% y-o-y in 2QFY2012/06 (down from a 1.4% y-o-y growth in registered in 1QFY2012/06), following the 30 sen/litre hike in RON97 petrol price at the end of February 2006.

However, PLUS had already started to shrug off the impact, recording a 0.8% y-o-y growth in traffic volume in 3QFY2012/06 (the second full quarter after the petrol price hike) and the traffic volume subsequently normalised in 4QFY2012/06 (+4.2% y-o-y).

This time around, we believe the impact is also likely to be contained given that the price rise is small compared with the previous petrol price hikes in February 2006 and June 2008.

We maintain our earnings forecasts. Risks to our view include: (i) FY1202/10-12 traffic volume growth rate of PLUS’ core expressways coming in below our assumption of 5% for FY2012/10, and 3% per annum for FY2012/11 and FY2012/12; (ii) higher-than-expected maintenance costs; and (iii) operating risks in overseas ventures (in particular, Indonesia and India).

Although PLUS’ share price has risen by 12.7% since July 5 due to strong traffic volume growth, we are maintaining our outperform recommendation and discounted cash flow-derived fair value of RM4.33 (based on WACC of 7.7%).

We continue to like PLUS for its defensive earnings quality and decent dividend yield of 5% to 6% per annum. — RHB Research Institute, Aug 3