KUALA LUMPUR : MIDF Research has maintained a 'buy' recommendation for Lingkaran Trans Kota Holdings Bhd with a revised target price (TP) of RM5.08 from RM4.60 per share.

This is to reflect Amanat Lebuhraya Rakyat Bhd's (ALR) offer to purchase all the securities in its 100 per cent-owned Lingkaran Trans Kota Sdn Bhd (LITRAK) and its 50 per cent-owned Sistem Penyuraian Trafik KL Barat Sdn Bhd (SPRINT) with a combined enterprise value (EV) of RM3.93 billion, assuming the deal materialises.

LITRAK is the concession holder for Lebuhraya Damansara-Puchong (LDP), while SPRINT is the concession holder for SPRINT Highway.

ALR, which will be structured as a 'not-for-profit' entity, will be acquiring 100 per cent of SPRINT, LITRAK, KESAS Sdn Bhd (KESAS) and Syarikat Mengurus Air Banjir & Terowong Sdn Bhd (SMART) for a combined EV of RM5.48 billion (RM2.06 billion debt and RM3.42 billion equity).

"There will be no rate hike for the toll rates until the end of the concessions, and the government will be saving approximately RM4.3 billion (excluding RM0.7 billion tax waiver) in toll subsidies.

"An estimated RM5.5 billion sukuk will be issued to fund the entire acquisition and tolling is expected to end in May 2032 (based on base-case traffic volume compound annual growth rate of 1.7 per cent per annum) once the sukuk has been fully repaid, whereupon the highways will be returned to the government," it said.

The research house noted that all free cash flow collected will be utilised to service the interest and principal payments, and any surplus in funds will be utilised for early redemption of the sukuk.

However, it said the government may extend the concession period for the highways for up to 10 years to provide a buffer in case there is a shortfall in the projected traffic volume.

"We believe that the offer is an attractive proposition for the shareholders.

"By comparison, the deal offered by the Ministry of Finance Incorporated to LITRAK Holdings back in June 2019 had an offer price of RM5.21 per share which represents a price-to-book value (P/BV) of 2.96 times," said MIDF Research.

The research firm believed that due to the attractive upside, investors should accept the offer as an exit strategy, given the lack of catalyst for LDP and SPRINT.

"The average weekday tollable traffic for these highways has been on a downtrend in the past few years due to the increase in ridership of public transportation, especially the LRT and MRT.

"Additionally, the completion of MRT2 and MRT3 are expected to further put a downward pressure on the tollable traffic volume," it said.

Meanwhile, Maybank Investment Bank (IB) viewed the proposition as a 'win-win-win' for LITRAK, 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).

Maybank IB also maintained a 'buy' rating, with a TP of RM4.85 per share.

As at 11 am, the share price of Lingkatan Trans Kota was up 44 sen to RM4.47 with 3.32 million shares traded.