It's
been a while since I wrote about good companies for my readers. I
believe that presenting these above-average companies to my readers, be
it undervalued or overvalued, could save you a lot of time in finding
your next gem.
Since
there are so many public listed companies, many ordinary investors have
been struggling to find ways to analyze all of them so as to unearth
the diamonds in the market. However, they do not represent my recommendation so please exercise your judgment.
Without
further ado, let me show you what I've got this time - Lingkaran Trans
Kota Holdings Berhad (LITRAK), the operator of Lebuhraya Damansara
Puchong (LDP).
For
the Malaysians who live around the Klang Valley, LDP should be of no
stranger to you as it is one of the major expressways within the Klang
Valley. You will realize that there are many established shopping malls
along the highway, hence it is considered the spine of Petaling Jaya.
Two
things about LITRAK I bet most of you didn't know. Firstly, it is the
shareholder of SPRINT. Secondly, it is the western section of Middle
Ring Road 2 (MRR2), should sound familiar to 'Kepong Lang' (people living in Kepong).
In
regards to its management, Gamuda Berhad holds about 45% of the company
while LITRAK's managers own minimal stake. The small shareholdings of
the managers concern me a lot.
There
is no doubt about the company's profitability. However, the huge
borrowing of the company worries many investors. As of March 2015,
LITRAK's debt to equity ratio was about 240%. I would say this is the
way the industry works due to huge capital expenditure needed. Why not
also take a look at the cash ratio?
LDP
has many prestigious shopping malls such as One Utama, The Curve,
Empire Damansara, IKEA, Tropicana City Mall, Paradigm Mall, and Sunway
Pyramid. With their help and other developments along the highway, you
should be pretty convinced of its consistent toll-able traffic.
Investors
should also keep track of the future developments along LDP and SPRINT
highways as they will increase traffic flow. Despite being a cash
generator, LITRAK has its business risks as well.
The
soon-to-be-completed MRT might cause more people to take public
transport instead of driving. For drivers like myself, I believe, by
using modern apps, will provide better road alternatives, especially
those without toll stations, pose threat to LITRAK as well. Besides, the
termination of concession agreement by the government, although
unlikely, is the biggest risk of all. Frankly, I am not in the position
to assess this risk.
Lastly,
I would say that LITRAK is protected by an economic moat given by the
government. Whether this gift will be continued indefinitely, I am not
in the position to assess. Not to forget that as a result of this gift,
LITRAK has been producing extremely good returns for its shareholders.
About VGrowth Capital
VGrowth
Capital PLT was formed in April 2016 with the primary aim to invest in
the stock market. Alex Tan was approached by an investor with a
six-figure start-up capital. The partnership practises concentrated
value investing in undervalued yet wonderful businesses.
LITRAK (6645) - A Cash Cow With High Profitability
http://www.valueinvestingstock.com/#!A-Cash-Cow-With-High-Profitability/cour/57315df50cf287ca4949b4ed
