Sights too high on highways?

TRAFFIC projections for highway projects are usually very positive, especially at the outset. After all, the promoters need to get investors on board.

These projections may get a particular highway project off the ground and translate it into reality, but the future is really uncertain.

Most such projects have had stronger-than-expected projections and toll rate hikes – but these have been difficult to realise in recent years due to rising cost-of-living concerns.

Nevertheless, investors remain confident as the private vehicle is still the most preferred mode of transport in this part of the world.

As such, longer-than-usual gestation periods can be true for most of these investments and some shareholders may not be willing to wait it out.

A case in point is the Kuala Lumpur-Kuala Selangor Expressway Bhd (KLKSE) which saw Bina Puri Holdings Bhd disposing of its 50% stake in the concessionaire to KLKSE’s managing director Datuk Mohamed Raffe Chekku for RM77mil.

The KLKSE or the Latar Expressway is situated in the north-west of Selangor and links Kuala Selangor to Selayang.

The expressway also traverses localities with residential densities such as Ijok, Puncak Alam, Shah Alam, Bukit Jelutong, Sungai Buloh and Rawang.

Earlier traffic projections did not seem to materialise with Bina Puri saying that no dividends have been paid out by KLKSE in the nearly three decades since the concession project was awarded in 1997.

Bina Puri executive director and group chief executive officer Marcus Goh said earlier that the KLKSE may require a long gestation period to generate surplus income and cash flows for distributions to its shareholders.

Nevertheless, Bina Puri’s sale of its 50% stake in KLKSE gave it an estimated disposal gain of approximately RM74.9mil.

Latar Expressway’s average daily traffic volume had grown to an average of 97,000 vehicles per day in 2024, which is above the break-even levels at an estimated 90,000 per day.

Mid last year, Bina Puri’s management said it anticipates the first associate profit from Latar Expressway from 2029. This came after the concession had turned profitable in 2023.

It made a total net profit of RM42.5mil in financial year 2024 (FY24), a big jump of more than 170% year-on-year (y-o-y).

Despite turning operationally profitable in 2023, the highway still carried accumulated losses of RM234.2mil as of end-December 2024 with negative equity of RM174.2mil.

The group will only begin recording its share of profit when this negative equity position is reversed.

When Latar Expressway began operations in early 2012, projections then were for it to deliver an 11% internal rate of return (IRR), while it was expected to contribute about RM1mil to Bina Puri’s pre-tax profit by FY16.

The initial projections also imputed a 10% toll rate hike every five years.

A 2005 study published by B. Flyvbjerg et al at Denmark’s Aalborg University shows with very high statistical significance that forecasters generally do a poor job of estimating the demand for transportation infrastructure projects – whether intentionally or not.

The statistics in this research are based on samples covering 210 projects in 14 countries.

“For nine out of 10 rail projects, passenger forecasts are overestimated with an average overestimation of 106%.

“For 72% of rail projects, forecasts are overestimated by more than two-thirds.

“For 50% of road projects, the difference between actual and forecast traffic is more than 20%; for 25% of road projects, the difference is larger than 40%.

“For both rail and road projects, the risk is substantial that demand forecasts are incorrect by a large margin,” the research paper notes.

In Malaysia, one pure highway listed company is WCE Holdings Bhd which has a concession to build and operate the West Coast Expressway (WCE E32).

It still reported a net loss of RM26.4mil in its latest reported second quarter ended Sept 30, 2025 of FY26 (2Q26).

The WCE, which serves as an alternative route to the often congested intercity North South Expressway (NSE E1 operated by Plus Expressways Bhd), is almost complete, with the exception of Sections 3 and 7 of the Selangor Alignment with a completion rate of 95% and 84%, respectively.

The WCE concessionaire said late last year that it aims to complete the expressway by end-March 2027.

This highway runs from Banting in Selangor and ends at the ramp of the NSE’s Changkat Jering toll plaza in Taiping, Perak.

Another listed highway entity is Prolintas Infra Business Trust which operates and maintains these intracity highways: Ampang-Kuala Lumpur Elevated Highway, Guthrie Corridor Expressway, Lebuhraya Kemuning-Shah Alam, the Kajang SILK Highway, Sungai Besi-Ulu Kelang Elevated Expressway and the Damansara-Shah Alam Elevated Expressway.

Prolintas Infra, which is usually bought for its dividend yields, had in its FY25 recorded a distributable amount of RM75.5mil.

The trustees declared a second-half distribution of RM37mil, bringing the total FY25 distribution to RM72mil or 6.55 sen per unit.

Last week, it announced its second-half distribution announcement of 3.36 sen per unit which is payable on March 25 to unitholders registered in the record of depositors as at March 13.

The trustee manager said toll collection had seen a growth of 5.2% y-o-y to RM84.8mil from RM80.6mil in 4Q24, underpinned by higher traffic volume across all highways under its portfolio.