Saturday May 3, 2008
PLUS cruises despite weak market
By LEONG HUNG YEE
PETALING JAYA: PLUS Expressways Bhd's shares, which were actively traded the past two weeks, rose from a low of RM3.14 on April 11 to a month's high of RM3.24 yesterday.
Analysts said the overall weak market sentiment prompted investors to pick up income stocks like PLUS, which pays reasonable dividends and shows prospects of better earnings.
An analyst said the highway operator, which was a favourite with investors, was known for its stable earnings and growing operating cashflow, suggesting that these factors could have influenced investor interest.
PLUS operates the North-South Expressway, Elite Highway, Linkedua and the Penang Bridge.
In a recent report, JPMorgan had upgraded the counter to “overweight” from “neutral” with a target price of RM4.15.
The research house had also revised PLUS' earnings per share estimate by 23% to 29 sen for the financial year ending Dec 31, 2008 (FY08), 24% for FY09 and 23% for FY10.
It said the better-than-expected traffic growth, following no increases in petrol prices and toll rates, strong regulatory environment where Government compensation for the deferment in toll rate increases actually put PLUS in a better position, and higher-than-expected net profit contribution from Elite and Linkedua, had prompted it to upgrade the company.
However, JPMorgan cautioned that higher petrol prices were a key determinant to traffic growth. “We believe there is little risk of this taking place after the shock general election results which are forcing the current social agenda of keeping food and fuel prices fixed as long as possible,” it said.
Traffic growth for FY08 was expected to grow 6%, it said, adding that it grew 8% year-on-year in the first quarter of this year, well ahead of expectations given the deferment of the 10% toll increase.
Another unexpected driver was new car sales growth, which had surged 25% year-to-date.
“We expect some of the current strong momentum in traffic to slow down by the second half of the year due to uncertainties in the economic environment,” it added.
JPMorgan said a delay in the toll increase and the subsequent compensation payment actually worked out to be a blessing in disguise for PLUS.
“Traffic volumes, which we have already seen to be exceedingly strong in 2008, should invariably come in higher without any toll increase. The Government will compensate PLUS for the amount of revenue lost on traffic volumes that have been buoyed on rates staying flat,” it said.
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