I Read Through 626 Pages of Prolintas IPO Prospectus: Here’s 8 Things to Know

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#1: What is Prolintas?

Prolintas Trust (ProL) constructs, manages, and operates highways, and provides maintenance services to them. Its four main assets are

1. AKLEH (7km): From Ampang to City Centre
2. GCE (25km): Connects Shah Alam, Bukit Jelutong, Denai Alam, Elmina, Subang, Rawang
3. LKSA (15km): From Kota Kemuning to Shah Alam
4. SILK (37km): Connects Kajang, Bangi, Sungai Long and Semenyih

ProL is owned by PLKH, which is in turn owned by Permodalan Nasional Berhad (47%) and Amanah Saham Bumiputera (53%). Hence, it is under government control indirectly.

After the IPO, PLKH will own about 51% of ProL.

#2: IPO Proceeds Used For?

ProL listed itself for RM0.95 per share. And it’s planning to raise about RM445.3 million from the IPO. However, it doesn’t get any of the proceeds.

You see, PLKH which owns the entirety of ProL will not create any new shares. It will instead sell existing shares of ProL to investors. This means a payday for PNB and ASB by them listing the company on the market.

I am not a fan of this. No doubt, I don’t them for wanting a payout from their investments. But my beef with them is the unclear direction of what they will use the money for.

#3: Financials of the Company?

Volatile. It is how I will describe ProL’s financials. Its revenue of RM384 million hasn’t recovered to its 2020 level of RM394 million. For the 3 quarters in 2023, its revenue had also experienced a significant decline of 20% to RM229 million.

It also registered a big loss of RM257 million for 2023 after recording an impairment loss on its highways costing RM124 million, and a finance cost of RM108 million. Things aren’t looking good for ProL based on this.

However, if we look at its operational cash flow, there is a silver lining here. It is still maintaining a positive operating cash flow of RM79 million in 2023, which shows that it has some capabilities to turn profitable.

#4: High Debt and Loss-Making

If there is one thing you need to know, it’s that ProL has made a lot of losses and is highly indebted. ProL has accumulated a total loss of RM673 million over its lifetime. These losses are no joke. When you think about highways, you think about stable revenue and profits. This is the total opposite.

I have no idea when ProL will ‘break even’ (accumulated losses turn positive). There are two reasons why ProL is this way now. Firstly, it has to constantly re-evaluate its highway values throughout its lifetime. It does do an amortization of its highway assets but sometimes, it declares a big loss in value like this year (RM124 million). Secondly, it has so much debt. Currently, it has a total debt of RM1.4 billion and pays an average of RM148 million in debt repayment.

#5: Most Important Assets?

Highways are unique. The government grants them concessions in which the company can charge tolls until a certain year. The government negotiates the toll rates with the operator (normally cheaper) and in turn, the highway operator can charge tolls for a certain number of years.

So far, three highways have concessions until 2062 – GCE, LKSA and SILK. AKLEH has a concession until 2032 (8 more years). SILK is its most important asset contributing about 35% to revenue in 2022, followed by GCE (29%), AKLEH (21%) and LKSA (16%).

#6: Dividend Policy?

Because this is inherently a real estate investment trust (REIT) but just for highways, it needs to have a solid dividend policy. ProL has promised that it will give out 90% of its profits in dividends to shareholders. This is quite in line with many REITs in the market, as their main allure is their high dividend payouts. In 2024, ProL projects that it will make a profit of about RM68.7 million. It will in turn distribute RM61.8 million in two tranches in 2024 and 2025.

#7: Risks of the Company?

There are two main risks you have to be aware of. Firstly, ProL is in the highway concession business. Thus, it’s subjected to heavy government regulation and changes. In 2022, the government negotiated to lower the toll rates in exchange for a longer concession period. This is both positive and negative. In the long term, ProL can collect more tolls. In the short term, it might not be profitable.

Secondly, it is exposed to the risks of the pandemic. In 2020 and 2021, its revenue and profits declined due to the lockdown restrictions. While this may be a one-off event, it seems that Malaysia will implement the same policies should a pandemic occur again.

#8: Potential for the Future?

Generally, the highway business is steady and ‘boring’. There will always be people traveling to and fro. With higher demand from the economy, there will be higher demand for people to move around. Traffic volume for ProL’s highway has recovered past its pre-pandemic level (156 million) at 158 million in 2022. Moving forward, the outlook will depend on the economy's state. The Malaysian government expects Malaysia’s economy to grow by about 4.5% in 2024 which is in line with historical averages. Furthermore, ProL has the first right to purchase the new highways of DASH and SUKE from its parent company PLKH. This could improve the prospects of the company considering that both highways service a large segment of the Klang Valley population.