KUALA LUMPUR: Listing-bound Prolintas Infra Business Trust is expected to record revenue growth largely anchored by a steady increase in traffic volume.
Affin Hwang Capital assumed traffic volume growth of 3.4 pe cent per annum over the next 10 years for the purpose of its forecasts.
"Gross domestic product , employment, and population growth will be the main drivers of traffic growth as we expect all three of these indicators will spur travel demand within the Klang Valley.
"Development of new townships surrounding the city centre is also expected to be another pillar of growth, as Prolintas' highways are strategically positioned to capture the budding traffic from the townships," it said in a note.
The firm initiated coverage on the company with a "Buy" call and a target price of RM1.22.
Potential upside is yield accretive acquisitions in the future as Prolintas has first right of refusal to buy two toll highway concessions.
They are Sungai Besi-Ulu Kelang Elevated Expressway and Damansara-Shah ALam expressways, held by its major shareholder Projek Lintasan Kota Holdings Sdn Bhd.
"We applied a 10 per cent discount to derive our target price after taking into account traffic volume forecast risk and government policy risk.
"Based on our TP, we expect a yield compression to 5.2-5.5 per cent in 2024-26E, which we believe is fair, given the quality of Prolintas' assets and sustained long-term growth prospect."
Prolintas holds four cash-generating highway concessions within the business trust, each generating consistent cash flows from toll collections.
The company opts to inject the assets into a business trust instead of a traditional listing as trust distribution is not affected by non-cash items such as amortisation, which reduce accounting profits.
"As such, distributions made will better match cash flows, which suits the stable cash-generation business of the toll highway concessionaire.
"Prolintas has pledged to distribute 90 per cent of distributable income, which will be adjusted for various non-cash items.
"Based on our forecasts, we believe that this is sustainable as aggregate project free cash flow is sufficient to cover the distribution," added the firm.