Key Takeaways From Perak Transit’s (Ptrans) Briefing Are as Follows:

• Maintaining 35% dividend payout post bonus issue;

• Maiden Bidor Sentral’s profit to support FY24 earnings growth;

• Two pipeline projects, i.e.: Tronoh and Seri Iskandar.

We trim FY24-25 earnings projections by 2.5-3.1% after incorporating FY23 earnings into forecast. We maintain Buy on Ptrans with a lower SOP valuation of RM1.55/share.

Maintaining 35% Dividend Payout Post Bonus Issue

Management has reaffirmed that bonus shares will also entitle for the first interim dividend of 0.75sen/share, making the effective first interim dividend to be 1.125sen/share after the 1:2 bonus issue exercise. However, management indicates that the historical 0.75sen/share quarterly dividend will be reduced in subsequent quarters after considering the future capex requirement and spike in net gearing ratio. Having said that, management is confident that Ptrans can sustain a dividend payment of 35% of earnings for FY24.

We are not entirely disappointed with the false hope about extra dividend considering that the company is being prudent in capital management. This is especially true that Ptrans is still on an expansion mode with a couple of pipeline projects. Based on 35% dividend payout ratio, our FY24 dividend projection of 3.3sen/share will be adjusted to 2.2sen/share later by multiplying the bonus issue adjusting factor of 0.67x.

Maiden Bidor Sentral’s Profit to Support FY24 Earnings Growth

Operationally, management attributes the respective 7% and 9% QoQ decline in revenue and PBT to lower share of profit from logistics tenants. The share of profit declined by approximately RM1mn to RM2mn per month currently. For FY24, we expect the earnings weakness from logistics tenants to be mitigated by maiden earnings contribution from Bidor Sentral and two new tenants (Figure 1 & 2) at Kampar Putra.

According to management, Bidor Sentral development is completed, pending the award of certificate of completion and compliance. This new integrated bus terminal is expected to commence operations by 2H24, targeting 50% start-up occupancy upon opening. This is not too difficult, in our opinion, since Ptrans has already leased 20% of Bidor Sentral’s net lettable area to TF Value-Mart for supermarket operations.

Two Pipeline Projects, I.e. Tronoh and Seri Iskandar

With regards to Tronoh Sentral development, the company has submitted the application for development order to the authority. As such, we can expect the development to kick start this year. Previously, we were guided that the construction cost is estimated at around RM320mn, which will be financed via existing cash hoard of RM90mn and future internally generated funds.

Besides Tronoh Sentral, management indicates that Ptrans had acquired a company for RM320k last year. This company has a piece of vacant land in Seri Iskandar, which is viable for Ptrans’ new integrated terminal model. As this is a dormant company with estimated RM3mn dues owing to its previous holdings company, the effective land cost would be RM3.3mn from the new terminal development standpoint. According to management, the preliminary estimate of capex requirement for Seri Iskandar development is RM360mn.

Forecast

We reduce our FY24 and FY25 earnings projections by 2.5% and 3.1% respectively after incorporating FY23 earnings into forecast.

Valuation

Following the earnings downgrade, we reduce Perak Transit’s SOP valuation to RM1.55/share (from RM1.59 previously) (Figure 3). Based on the bonus share adjusting factor of 0.67x, our SOP valuation will be adjusted to RM1.03/share ex-bonus. Maintain Buy

Source: TA Research - 26 Feb 2024