PLUS 100506 Initiating-Coverage

7/29/2019 PLUS 100506 Initiating-Coverage

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PP13693/04/2011(029398)

INVESTMENT RESEARCH

Initiating Coverage 6 May 2010

PLUS Expressways

(RM3.33 PLUS MK)

Buy

Target Price: RM3.98

Steady road ahead TOLL

Malaysian company with global standingListed in 2002, PLUS is a toll concessionaire company that is South EastAsias largest, and ranks within the worlds top ten by marketcapitalisation. The group currently holds 6 concessions. PLUS primaryasset, the 772 km North South Highway, is regarded as the main mode ofinterstate travel in Malaysia. The group has also ventured overseas inrecent years, with two greenfield projects in Indonesia and two brownfieldprojects in India. The group is continuing on their expansionary path,focusing on the Asia Pacific region.

Earnings growth to continueAs in the past, we expect PLUS continue to register sustainable growthon the back of traffic volume growth and toll hikes. The significant 37.9%growth in FY2011 EPS is driven mainly by a schedule 10% toll hike onthe North South Expressway and ELITE highway. The scheduled toll hikeis however subject to governments approval. Following a study on thetoll sector by the Economic Planning Unit (EPU), the government willneed to decide on its next course of action. If it chooses to postpone thetoll hike in 2011 but maintaining the terms of existing concession, PLUSwill be fully compensated in cash. However, if the government chooses topermanently lower toll rates by entering into supplementary agreements,we believe compensation would be on non-cash basis.

Initiate with a BUY, TP: RM3.98We initiate coverage on PLUS with a BUY call. We have derived a targetprice of RM3.98 per share using the dividend discount model, based on acost of equity of 6.2% and a long term growth rate of 1.5%. Our dividendgrowth assumption is conservative as we expect PLUS to achievedividend growth of 1.3% even if toll rates are maintained at current levelfor the remaining duration of the concession. On the other hand, shouldall scheduled toll hikes be taken into account, we could expect a 3.6%dividend CAGR over the remaining concession period. As such, the riskof delays in toll hikes has been priced in.

We expect PLUS to achieve its 2010 headline KPI of a 75% dividendpayout ratio and maintain its minimum dividend policy of a 70% payoutratio going forward. We view PLUS as an attractive buy given (1) a

37.9% earnings growth in FY2011, (2) expanding dividend yields, (3)minimal risks in business operations due to inelastic demand of services,and (4) further growth via expansion of overseas presence.

Financial summary

FYE 31 Dec 2008 2009 2010F 2011F 2012F

Revenue (RM m) 2,968.0 3,179.0 3,378.2 4,217.4 4,357.1EBITDA (RM m) 2,544.3 2,729.6 2,841.7 3,509.9 3,627.6Net profit (RM m) 1,079.3 1,186.4 1,251.3 1,725.3 1,839.9

EPS (sen) 21.6 23.7 25.0 34.5 36.8ECM / Consensus (%) 101.6 103.9 105.0EPS growth (%) (13.5) 9.9 5.5 37.9 6.6P/E (x) 15.4 14.0 13.3 9.7 9.0

Net DPS (sen) 16.0 16.5 18.8 24.2 25.8Dividend yield (%) 4.8 5.0 5.6 7.3 7.7

BVPS (RM) 1.14 1.22 1.30 1.45 1.58P/BV (x) 2.9 2.7 2.6 2.3 2.1

Share Price Chart

Source: Bloomberg

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Shar e pr ic e (lhs ) Relativ e perf ( rhs)

Price PerformancePrice (RM) 3.3352-week Range (RM) 3.12 3.46Avg Daily Volume (000) 3,704

1M 3M 6MAbsolute (%) -2.1 -2.6 0.9Relative (%) -1.6 -9.0 -5.3

Key DataMarket Cap (RM m) 16,650

Issued Shares (m) 5,000

Major Shareholders %

Khazanah Nasional 55.2

EPF 12.5

Foreign shareholding 9.2

Balance Sheet Highlights (RM m)(@ 31.12.2010) (performance indicators annualised)

Total Assets 18,197.2Total Liabilities 11,698.3Total Debt (Gross) 10,417.3Shareholders Equity 6,477.9

Return on Assets (%) 6.9Return on Equity (%) 19.3Net Cash / Share (RM) 0.6

Debt/Equity (x) 1.2Interest Cover (x) 3.5

Bernard [email protected]+603 2178 1214


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INVESTMENT RESEARCH

Background

PLUS Expressways Bhd is an investment holding company principally engaged in highwayconcessions and related services. Listed in 2002, it is today the biggest toll concessionaire

company in South East Asia and ranks as one of the top ten by market capitalisation in theworld. Through its subsidiaries, it houses a stable of highway toll concessions both locallyand overseas. The concessions located in Malaysia runs a total length of 973km, whichmakes up approximately 60% of all toll roads. Even with 280km of new tolled roads comingon stream by 2012, it will still hold more than half of Malaysian toll roads at 52%. PLUS is56% controlled by the Malaysian government via Khazanah Nasional Bhd.

Figure 1 : Corporate structure

100%

94%

Khazanah Nasional

Bhd

UEM Group Bhd

PLUS Expressways

Bhd

KLBK Sdn Bhd

Linkedua (M) Sdn Bhd

Expressway Lingkaran

Tengah Sdn Bhd

PLUS Bhd

PLUS BKSP Toll Ltd

PT Lintas Marga

Sedaya

Domestic International100%

100%

100%

55%

17%

9%

100%

PT Cimanggis Cibitung

Tollways

60%

PLUS Helicopter

Services Sdn Bhd

100%

Source: Company

Figure 2 : Ownership of Malaysian toll roads (including projects under construction)

MTD Capital

23%Others

26%

PLUS

Expressways

51%

Source: Malaysian Highway Authority, Other sources

Biggest toll concessionaire inSouth East Asia


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INVESTMENT RESEARCH

Toll concessions

Since the incorporation of PLUS in 1988, the PLUS Group remained a single assetcompany for 12 years until it embarked on an expansion plan in 2006. The expansion

programme has since picked up pace and the company now has 6 toll concessions underits belt. The toll roads operate under both the open toll system as well as closed tollsystem. In the open toll system, consumers pay the same rate notwithstanding the distancetravelled, whereas in the closed toll system, consumers collect a ticket at the entry tollplaza and a rate is charged based on the distance travelled at the exit toll plaza.

Figure 3 : List of concessions

Companies Stake Year

Length

(KM)

Toll

system

Concession

Period

Nex t toll

review

1. PLUS 100% 1988

North South Expressway 772 Mixed 1988 - 2038 2011

North Klang Valley Expressway 35 Closed 1988 - 2038 2011

Federal Highway Route 2 16 Open 1988 - 2038 2011

Seremban Port Dickson Highway 23 Open 1988 - 2038 2011

2. E xpressway Lingkaran Tengah Sdn Bhd 100% 2007

North South Expressway Central Link 63 Closed 1994 - 2030 2011

3. Linkedua (M) Sdn Bhd 100% 2007

Malaysia Singapore Second Crossing 47 Open 1993 - 2038 2013

4. Konsortium Lebuhraya Butterworth Kulim Sdn Bhd 100% 2008

Butterworth Kulim Expressway 17 Open 1994 - 2026 2013

5. PLUS BKSP Toll Ltd 94% 2006

B hiwandi-Kalyan -S hil Phata Highwa y 2 2 O pen 20 06 - 2015 201 3

6. PT Lintas Marga Sedaya 55% 2007

Cikampek Palimanan Toll Road 116 Closed 2006 - 2041 *

1111

* Operations have not started. Toll hikes to incre ase every 2 years based on inflation rates

Source: Company, Other sources

Figure 4 : Remaining concession period

2010 2013 2016 2019 2022 2025 2028 2031 2034 2037 2040 2043

Cikampek

BKSP*

BKE

ELITE

MSSC

NSE

* To be finalised

Source: Company

The Group has 6 tollconcessions both locally and

abroad


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INVESTMENT RESEARCH

MALAYSIA

North South Expressway (NSE)

The North South Expressway is the longest expressway in Malaysia, connecting thenorthern tip of the Peninsula in Kedah down the west coast to Johor, spanning a total of772km. The expressway is the first toll concession under the PLUS Group and until todayremains its primary asset, contributing 80% of its revenue. The expressway serves threeregions, namely the Central region (Kuala Lumpur, Selangor), Northern region (Penang,Kedah and Perak), and the Southern region (Negri Sembilan, Malacca, Johor).

Over the years, PLUS has entered into a series of concession agreements with thegovernment:

The first concession for NSE, NKVE and Federal Highway Route 2 (FHR2) signed in1988 between its parent UEM and the government had a concession period of 30 yearsuntil May 2018. The concession was later transferred from UEM to PLUS

When the toll rate structure was revised in 1999, the Supplemental ConcessionAgreement (SCA) was signed, and the concession period was extended for 12 years toend on May 2030

In May 2002, the toll structure was further revised via the Second SupplementalConcession Agreement (SSCA). Instead of toll hikes of about 26% every five years, tollrates were revised to increase 10% every three years. Non cash compensation wasprovided, against which PLUS could deduct its income tax payable to the government,amongst others (see Figure 6)

The Third Supplemental Concession Agreement (TSCA) signed in 2005 involved thetakeover of the Seremban Port Dickson Highway and closure of the Senai Toll Plaza,among others. The concession period was again extended for 8 years and 7 months toend in December 2038, effectively giving PLUS a concession period of 50 years.

Figure 5 : Traffic volume and GDP correlation

-3.0%

-1.0%

1.0%

3.0%

5.0%

7.0%

9.0%

2005 2006 2007 2008 2009

RM mReal GDP Grow th Traff ic Grow th

Source: Company, other sources

NSE is the transportationbackbone of Peninsula Malaysiaand PLUS primary asset

Concession period of NSE atotal of 50 years


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INVESTMENT RESEARCH

Figure 6 : Toll rate structure

10

12

14

16

18

2022

2426

28

30

3234

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

sen/km

SCA SSCA

Source: Company

North South Expressway Central Link (ELITE)

Commonly called the ELITE Highway, the 63km toll road connects to the NKVE at ShahAlam and rejoins the NSE at Nilai North Interchange, Negri Sembilan. Acquired forRM802m in 2007 from UEM Group, it bypasses the busy traffic at Kuala Lumpur area andallows consumers a smooth uninterrupted journey towards Nilai. Key destinations on theELITE Highway include the Kuala Lumpur International Airport, Low Cost Carrier Terminal,as well as the Sepang F1 Circuit. Similar to PLUS, ELITE has signed four concessionagreements which has seen its concession life extended until May 2030. Its toll ratestructure is also similar to PLUS, eligible for a 10% increase every three years, with thenext toll hike in year 2011.

Figure 7 : ELITE traffic trend

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

2005 2006 2007 2008 2009*

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

No. of Vehicles ('000) Traff ic Volume Growth (%)

*ECM estimates


ELITE is a key bypass route toavoid KL congestion


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INVESTMENT RESEARCH

Malaysia Singapore Second Crossing (MSSC)

PLUS Expressways completed the acquisition of Linkedua (M) Sdn Bhd, the concessionholder of the MSSC for RM64m in 2007. Built in 1994 as an alternative to the frequently

congested Johor Singapore Causeway, it runs a total of 44km linking Tuas, Singapore toTanjung Kupang Johor, which then progresses upwards joining the NSE and further intoSenai. The concession period began in July 1993 and will expire in December 2038, a totalof 45 years. Under the concession agreement, Linkedua can increase toll charges by 27%every 5 years. It last increased toll charges in January 2008.

Figure 8 : MSSC traffic trend

-

5,000

10,000

15,000

20,000

25,000

2005 2006 2007 2008 2009*

0.0%

5.0%

10.0%

15.0%

20.0%

No. of Vehicles ('000) Traff ic Volume Growth (%)

*ECM estimates


Butterworth Kulim Expressway (BKE)

The latest of its local acquisitions, PLUS acquired BKE from MMC Corporation Bhd for aconsideration of RM134m in March 2008. The BKE is a 17km highway operating on theopen toll system that links Seberang Perai, Penang to Kulim, Kedah in an east westalignment. Its concession agreement allowed a toll rate increase of about 23% every 5years, with a concession period beginning in June 1994 to June 2026.

Figure 9 : BKE traffic trend

-

5,000

10,000

15,000

20,000

25,000

2005 2006 2007 2008 2009*-3.0%

-1.0%

1.0%

3.0%

5.0%

7.0%

No. of Vehicles ('000) Traffic Volume Growth (%)

*ECM estimates


Alternative to the heavilycongested Johor-SingaporeCauseway


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INVESTMENT RESEARCH

INDIA

Bhiwandi Kalyan Shil Phata Highway (BKSP)

Through an unincorporated consortium with Concept Corporation Ltd, PLUS won a tenderbid in 2006 for BKSP for the four-laning, improvement, operation, maintenance and tollcollection for an initial period of 6 years and 8 months. This was subsequently extended to7 years and 11 months in consideration for the delay in handing over of land forconstruction of the 22km BKSP, which is one of the major links connecting the MumbaiPune Highway at Shil Phata to the Nashik Highway at Bhiwandi. Traffic feeding into thehighway is sustained by major towns located along the highway such as Kalyan, Dombivaliand Bhiwandi. The Indian operation has started toll collection in August 2009, chargingINR25 for passenger cars. The concession agreement allows for an INR5 toll hike every 3years.

Figure 10 : Bhiwandi Kalyan Shil Phata alignment

Source: Maharashtra State Road Development Corporation Ltd

Padalur Trichy Highway

In January 2010, PLUS proposed to acquire a 74% stake in Indu Navayuga Infra ProjectsPte Ltd, the concessionaire for the 38.6km Padalur Trichy Highway. The acquisition would

be completed in 2 stages, 1) transfer of 49% upon achievement of Commercial OperationDate, and 2) 25% three years after the COD date. Similar to the BKSP, it is a brownfieldproject, which provides a measure of reassurance on the level of traffic to be expected. It iscurrently awaiting its COD and management expects tolling to commence in May 2010. Asit forms part of Indias national highway, toll rates are regulated by the National HighwayAuthority of India, which stipulates that passenger vehicles are to be charged INR0.71/km,and will be adjusted annually according to the movements of Indias Wholesale Price Index.

PLUS first Indian venture hasstarted toll collection

Its second venture to start tollcollection soon


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INVESTMENT RESEARCH

INDONESIA

Cikampek Palimanan Toll Road

PLUS Expressways obtained its 55% stake in the Cikampek Palimanan Toll Road via theacquisition of PT Lintas Marga Sedaya in 2007. The 116km road is the missing linkbetween the existing Jakarta Cikampek Toll Road and Palimanan Kanci Toll Road. It isalso the longest section of the ambitious Trans Java Expressway that seeks to connect theJava Island from end to end, totalling 1140km.

The Cikampek Palimanan Toll Road was originally planned to be operational in 2010.However, progress on the Indonesian project has been slow due to complications arisingfrom land acquisition, which is currently 60% completed. To minimise risk, construction willonly start upon completion of land acquisition. The group will also seek to negotiate withthe Indonesian government for compensation for the loss of revenue arising from the delay.

Figure 11 : Trans Java Expressway

Source: Indonesia Toll Road Authority

Cimanggis - Cibitung Toll Road

PLUS and its Indonesian partners won a joint bid for the Cimanggis Cibitung Toll Road

project in September 2007. The joint venture, PT Cimanggis Cibitung Tollway in which PEBhas a 60% stake, was formed to enter into concession agreement with the Indonesiangovernment. The concession lasts a period of 35 years from the date of the concessionagreement, with a length of 25.4km forming part of the Jakarta Outer Ring Road 2. Otherterms and conditions of the concession agreement are stil l under discussion.

Cikampek Palimanan Toll Roadis the largest portion of theTrans Java Expressway

Project delayed due to landacquisition

Currently undergoing

discussions on concessionagreement details


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INVESTMENT RESEARCH

Figure 12 : Jakarta Outer Ring Road 2

Source: Indonesia Toll Road Authority

Financials

Over the last 5 years, PLUS had consistently achieved revenue and earnings growth on theback of traffic volume growth, scheduled toll hikes and expansion of toll concession.Revenue and gross profit have registered CAGR of 17.4% and 20.1% respectively over thelast 5 years (refer to Figures 13 and 14). The flattish net profit was however due tonormalisation of tax rates since FY08, following the expiry of tax exemption.

Going forward, we expect the growth momentum to be sustainable. We expect earnings to

register a growth of 5.5%, 37.9% and 6.6% in FY2010, FY2011 and FY2012 respectively.Our projections take into account both contributions from traffic volumes as well as toll ratehikes (see Figure 15). The significant growth in FY2011 numbers is mainly driven by tollhike. We estimate that 83% of FY2011 revenue growth is due to a 10% toll hike on NSEand ELITE highways as provided for in the concession agreements. As can be seen inFigure 16, these highways make up more than 90% of the groups toll collections.

Figure 13 : PLUS historical performance

-

500

1,000

1,500

2,000

2,500

3,000

3,500

2005 2006 2007 2008 2009

RM m

Net profit Gross profit Revenue

Source: Company

37.9% earnings growth in

FY2011 due to toll hike


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INVESTMENT RESEARCH

Figure 14 : Average Daily Traffic CAGR on key concessions (FY2005 FY2009)

0%

2%

4%

6%

8%

10%

12%

NSE ELITE Linkedua KLBK

Source: ECM Libra

Figure 15 : Breakdown of contribution to revenue growth

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2008 2009 2010F 2011F 2012F

RM mActual / Base revenue Traffic grow th Toll hike

Source: Company, ECM Libra

Figure 16 : Toll collection breakdown (FY2009)

KLBK, 2%

ELITE9%

Linkedua

4%

PLUS

85%

Source: Company


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INVESTMENT RESEARCH

However, the Economic Planning Unit has been directed to conduct a study on Malaysiantoll roads and come up with suitable solutions to tackle the issue of toll rate hikes. Thestudy has been completed and will be reviewed at a Cabinet meeting before a decision isreached. The toll industry has historically been prone to lower than scheduled toll hikes dueto consumer dissatisfaction, resulting in the Government paying the toll concessionairescompensation, which may be in cash, extension of concession period or other methods.Case in point, PLUS has been denied its toll hike of 10% on the NSE that was provided forin the concession agreement in 2008. The Malaysian government has also recentlyannounced that under the New Economic Model, subsidies will be reduced to promote amore efficient and competitive playing field. In light of these developments, two scenariosmay arise, (1) the 2011 toll rate hike may be postponed indefinitely pending the outcome ofthe EPU study, and (2) a permanent reduction in toll rates or future toll rate increases.

Although negative in the sense that terms of the concession agreement are not adhered tounder scenario 1, PLUS position is actually not compromised. This is because PLUS willbe paid cash compensation under the existing concession agreement. The cashcompensation will be based the difference in toll rates and the actual traffic volume. If 2008was anything to go by, traffic volumes should increase as consumers react positively.

In the second scenario, if the Government does indeed decide to permanently lower tollrates via a new concession agreement, we are of the view that compensation is unlikely tobe in the form of cash. In the past, the signing of new concession agreements has in mostinstances resulted in PLUS being compensated by non-cash methods, favouring instead anextension of concession period.

We have retained the 10% increase in toll rates in our earnings estimates pending moreconcrete developments on the outcome of the study conducted by EPU. Figure 17 belowsummarises some of the key assumptions in arriving at our earnings estimates.

Figure 17 : Summary of key assumptions

1. All future toll hikes are implemented as per concession agreements

2. No contributions from Indonesian operations3. Inclusive of contributions f rom Padalur Trichy Highway in I ndia

4. A ggregate traffi c growth of 3% in non toll hike year and 1% in t oll hike year

Source: ECM Libra

Risks

Talk of a second NSE has revived after being shelved in the mid 1990s and again in 2008.Previously labelled the West Coast Expressway, it stretches 216km from Taiping in Perakto Banting in Selangor. Should the project be given the green light, we believe PLUS will beat risk of losing some traffic volume. However, authorities involved have made it clear thata second highway would not be built at the expense of PLUS, which in turn has clarified

that utilisation rate at the central, northern and southern regions are only at 50%, 30% and35% respectively. Moreover, the proposed highway is reported to be built at a hefty RM5bn- RM6bn, adding to our view that possibil ity of its execution is remote.

Also circulating the industry is news of Asas Serba Sdn Bhds ambitious plan ofconsolidating all toll concession players under its roof at an estimated RM50bn. Aside fromlowering toll rates by 20% with no future toll hikes, they are also willing to forego anextension of concession period, which they have previously requested for. Thus far, thegovernment has yet to reveal their stance on the toll consolidation idea. Asas Serba hasreportedly proposed a dividend bond to finance the proposed toll consolidation exercise,which could potentially draw an annual yield of 7% or up to 15% on profit sharing.However, any development of an exercise on such a scale will encounter many obstaclesand is highly unlikely to unfold over a short time frame.

More imminent factors that may affect PLUS performance are 1) potential petrol price hike,2) changes in toll rates, and 3) progress of overseas projects. To note, share pricesplummeted to a 3 year low in 2008 when petrol prices increased significantly. Traffic growthalso fell to a 9 year low of 0.8% in 2005 when toll rates were last increased on PLUShighways.

Toll hike delay?

Or permanent reduction in tollrates or toll rate increases?

Likely to favour non-cashcompensation in event ofpermanently reduced toll rates

Second NSE and Asas Serbaconsolidation of all toll roadoperators unlikely to materialise


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INVESTMENT RESEARCH

Going forward

With three international ventures under its belt, PLUS is still going strong on its expansiondrive, committing to achieving 15% overseas contribution by 2015. The group intends to

focus on the Asia Pacific region, particularly India and Indonesia, where there is demandfor infrastructure networks to cater to the rising population as well as growing economies.We think the group should be able to leverage on their presence to increase participation inthe infrastructure development of these two countries. Adopting a more prudent approach,the management has adjusted their strategy by also considering the possibility of providingtechnical expertise and consultancy services before embarking on larger ventures incountries where they currently do not have a presence in, such as the Middle East andVietnam.

In addition, PLUS recently announced the acquisition of a 20% stake in Touch N Go SdnBhd (TnG), a company involved in the provision of electronic payment card services that iswidely used on Malaysian tolled highways. Although contribution from TnG is minimal toPLUS currently, the group believes there is growth potential due to its relatively low usageof electronic payment system compared to countries such as Singapore, as well as thepossibility of its application in the retail market as an alternative means of payment.

Valuation and recommendation

We initiate coverage on PLUS with a BUY call. We have derived a target price of RM3.98per share using the dividend discount model, based on a cost of equity of 6.2% and a longterm growth rate of 1.5%. Based on our assumption that all future toll hikes are to beimplemented as scheduled, dividends will see a 3.6% CAGR over the concession period.Provided that no new supplementary concession agreements are drawn up, the impact of apostponement of the 2011 toll hike on PLUS is minimal, as they will be duly compensatedin cash under the terms of existing concession.

We believe a 1.5% long term growth rate is reasonable, considering that should we useaustere assumptions that no toll hikes were to be implemented in the future and projections

are based on traffic growth alone, dividend CAGR would nevertheless register a 1.3%growth. Using a 1% long term growth rate would give rise to a target price of RM3.60 (seeFigure 20), which is still higher than the current price. As such, the risk of delays in tollhikes has been priced in.

If we assume the more remote possibility of Asas Serba acquiring PLUS assets based onthe formers terms, in which toll rates are slashed by 20% with no future increases, dividendCAGR would be 0.8%, which would result in a target price of RM1.82. On theseassumptions however, PLUS would not be able to fulfil its debt obligations, furthercontributing to our reservations on the feasibility of Asas Serbas proposal and therefore itssuccessful implementation.

Furthermore, PLUS has experienced dividend yield expansion over the past years, and iscurrently 1.4% higher than the 10 year Malaysian Government Securities (MGS) (seeFigure 19). Our dividend assumptions incorporate a 75% dividend payout ratio in FY2010,in line with their headline KPIs. We also expect PLUS to maintain its minimum dividendpolicy of a 70% payout ratio going forward. As such, dividend yields will be 5.6%, 7.3% and7.7% respectively for FY2010, FY2011 and FY2012.

15% overseas contribution inthe pipelines

Initiate with a Buy call, TP atRM3.98

Risk of toll hike delay has beenpriced in

Asas Serbas acquisition notfeasible


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INVESTMENT RESEARCH

Figure 18 : Dividend trends

0

2

4

6

8

10

12

14

16

18

2005 2006 2007 2008 2009

sen

0%

20%

40%

60%

80%

100%

Dividend per share Payout ratio

Source: Company

Figure 19 : Dividend yield curve

0%

1%

2%

3%

4%

5%

6%

7%

8%

2005 2006 2007 2008 2009 2010

Dividend yield 10yr MGS yield

Source: Bloomberg, ECM Libra

Figure 20 : Sensitivity of PLUS dividend discount model

LT Growth 5.0% 6.0% 6.2% 7.0% 8.0% 9.0%

0.0% 3.75 3.13 3.02 2.68 2.35 2.09

0.5% 4.17 3.41 3.29 2.89 2.50 2.21

1.0% 4.69 3.75 3.60 3.13 2.68 2.35

1.5% 5.36 4.17 3.98 3.41 2.89 2.50

2.0% 6.26 4.69 4.46 3.75 3.13 2.68

Cost of Equity

Source: ECM Libra


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INVESTMENT RESEARCH

PLUS EXPRESSWAYS BHD FINANCIAL SUMMARY

Balance Sheet Income Statement

FY 31 Dec (RM m) 2008A 2009A 2010F 2011F 2012F FY 31 Dec (RM m) 2008A 2009A 2010F 2011F 2012F

PPE 47.9 49.1 53.3 57.1 60.5 Revenue 2,968.0 3,179.0 3,378.2 4,217.4 4,357.1

Investments 229.3 289.1 159.2 159.2 159.2 EBITDA 2,544.3 2,729.6 2,841.7 3,509.9 3,627.6

Concession assets 12,380.5 12,417.5 12,267.6 12,047.5 11,809.6 Dep reci ati on & amorti sat ion (383.4) (410.3) (435.7) (506.3) (524.5)

P repaid land lease paym en ts 27.3 27.0 27.0 27.0 27.0 Finance cost (645.2) (695.7) (693.9) (643.3) (585.8)

Receivables 2,027.6 2,606.0 2,760.1 3,289.0 3,801.9 Share of associates - - 2.1 3.1 3.1

Other assets 74.1 95.2 112.4 133.4 136.9 Pretax profit 1,515.7 1,623.6 1,714.1 2,363.5 2,520.5

Dep osit, bank a nd cash 2,234. 4 2,883.5 2,817.7 2,333.6 1,896.7 Taxation (435.7) (438.5) (462.8) (638.1) (680.5)

Total Assets 17,021.0 18,367.5 18,197.2 18,046.7 17,891.8 Mi nority interest (0.7) 1.3 - - -

Net profit 1,079.3 1,186.4 1,251.3 1,725.3 1,839.9

LT borrowings 9,517.3 10,417.3 9,436.9 8,642.4 7,552.9 Adj net profit 1,079.3 1,186.4 1,251.3 1,725.3 1,839.9

ST borrowings 955.9 581.9 980.4 794.5 1,089.5

Payables 301.0 298.3 308.4 351.3 358.5 Key S tatistics & Ratios

Other l iabili ties 549.8 972.4 972.6 972.7 972.9 FY 31 Dec 2008A 2009A 2010F 2011F 2012F

Liabilities 11,324.1 12,269.8 11,698.3 10,760.9 9,973.8

Growth

Share capital 1,250.0 1,250.0 1,250.0 1,250.0 1,250.0 Revenue 30.1% 7.1% 6.3% 24.8% 3.3%Reserves 4,427.6 4,826.6 5,227.9 6,014.8 6,647.0 EBITDA 26.0% 7.3% 4.1% 23.5% 3.4%

Shareholders' equi ty 5,677. 6 6,076.6 6,477.9 7,264.8 7,897.0 Pretax profit 15.9% 7.1% 5.6% 37.9% 6.6%

Minority interest 19.3 21.0 21.0 21.0 21.0 Net profit -13.5% 9.9% 5.5% 37.9% 6.6%

Total Equity 5,697.0 6,097.6 6,498.9 7,285.8 7,918.0 Adj EPS -13.5% 9.9% 5.5% 37.9% 6.6%

Total Equity and Liabilities 17,021.0 18,367.5 18,197.2 18,046.7 17,891.8 Profitability

EBITDA margin 85.7% 85.9% 84.1% 83.2% 83.3%

Net profit margin 36.4% 37.3% 37.0% 40.9% 42.2%

Cash Flow Statement Effective tax rate 28.7% 27.0% 27.0% 27.0% 27.0%

FY 31 Dec (RM m) 2008A 2009A 2010F 2011F 2012F Return on assets 6.3% 6.5% 6.9% 9.6% 10.3%

Return on equ ity 19.0% 19.5% 19.3% 23.7% 23.3%

Pretax prof it 1,515.7 1,623.6 1,714.1 2,363.5 2,520.5

Dep reciation & amorti sat ion 383.4 410.3 435.7 506.3 524.5 Leverage

Cha nge in workin g capi tal (481. 1) (178.6) 45.6 (427.7) (430.0) Total debt / total assets (x) 0.62 0.60 0.57 0.52 0.48

Net interest received / (paid) (213.7) (527.0) (693.9) (643.3) (585.8) Total debt / equity (x) 1.84 1.81 1.61 1.30 1.09Tax paid (11.5) (438.5) (462.8) (638.1) (680.5) Net debt / equ ity (x) 1.45 1.34 1.17 0.98 0.85

Others 399.4 548.8 691.8 640.2 582.7

Operating Cash Flow 1,592.3 1,438.7 1,730.5 1,800.8 1,931.3 Key d rivers

Traffic growth 3% 6% 4% 1% 3%

Capex (859.4) (464.5) (364.5) (366.0) (366.0)

Others (118.7) (56.6) - - - Valuation

Investing Cash Flow (978.1) (521.1) (364.5) (366.0) (366.0) FY 31 Dec 2008A 2009A 2010F 2011F 2012F

Issuance of shares - - - - - EPS (sen) 21.6 23.7 25.0 34.5 36.8

Changes in borrowings (94.7) 526.0 (581.9) (980.4) (794.5) Adj EPS (Sen) 21.6 23.7 25.0 34.5 36.8

Dividend paid (725.0) (800.0) (850.0) (938.5) (1,207.7) P/E (x) 15.4 14.0 13.3 9.7 9.0

Others 22.1 - - - - EV/EBITDA (x) 9.8 9.1 8.5 6.8 6.5

Financing Cash Flow (797.7) (274.0) (1,431.9) (1,918.9) (2,002.2)

Net DPS (sen) 16.0 16.5 18.8 24.2 25.8

Net cash flow (183.4) 643.5 (65.9) (484.1) (436.9) Net dividend yield 4.8% 5.0% 5.6% 7.3% 7.7%Forex 0.2 5.6 - - -

Beginning cash 2,417.6 2,234.4 2,883.5 2,817.7 2,333.6 BV per share (RM) 1.14 1.22 1.30 1.45 1.58

Ending cash 2,234.4 2,883.5 2,817.7 2,333.6 1,896.7 P/BV(x) 2.9 2.7 2.6 2.3 2.1

Price Date: 05 May 2010


15/15

15

INVESTMENT RESEARCH

Key to stock recommendations: Key to sector recommendations:

Buy = Share price is expected to appreciate by >10% over the next 12 months Overweight = Industry expected to outperform the market over the next 12 months

Hold = Share price is expected to move by less than +/-10% over the next 12 months Neutral = Industry expected to perform in-line wi th the market over the next 12 months

Sell = Share price is expected to decline by >10% over the next 12 months Underweight = Industry expected to underperform the market over the next 12 months

This report is for information purposes only and general in nature. The information contained in this report is based on data and obtained from sources believed to be reliable. However, thedata and/or sources have not been independently verified and as such, no representation, express or implied, is made with respect to the accuracy, completeness or reliability of theinformation or opinions in this report. Accordingly, neither we nor any of our related companies and associates nor persons related to us accept any liability whatsoever for any direct,indirect or consequential losses (including loss of profits) or damages that may arise from the use of or reliance on the information or opinions in this publication. Any information, opinionsor recommendations contained herein are subject to change at any time without prior notice.

It is not possible to have regard to the specific investment objectives, the financial situation and the particular needs of each person who may receive or read this report. As such, investorsshould seek financial, legal and other advice regarding the appropriateness of investing in any securities or the investment strategies discussed or recommended in this report.

Under no circumstances should this report be considered as an offer to sell or a solicitation of an offer to buy any securities referred to herein. This company and its related companies, theirassociates, directors, connected parties and/or employees may, from time to time, own, have positions or be materially interested in any securities mentioned herein or any securitiesrelated thereto, and may further deal with such securities and provide advisory, investment or other services for any company or entity mentioned in this report. In reviewing this report,investors should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflict of interests.

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