Investment Highlights

• We initiate coverage on Perak Transit with a BUY recommendation and fair value (FV) of RM1.25. We see many similarities between this operator of modern public transport terminals and an airport operator. We value Perak Transit at RM1.25 based on 15x its FY22F EPS, at a 30% discount to our FY22F target PE of 22x for Malaysia Airports.
   
• Here’s why we like Perak Transit:
  1. Its unique business model, i.e. the operation of modern public transport terminals, also known as integrated public transport terminals (IPTTs) that emulate airports with spacious and brightly lit shopping, dining and waiting areas, and clean public facilities, particularly the washrooms. This entices visitors and commuters to spend more money and time in the terminal prior to their departure or upon their arrival, or while sending off or picking up their loved ones. This captive traffic is monetized in the form of rental incomes from commercial units and advertising space within the terminal;
  2. Perak Transit has proven the commercial viability of this business model in its Terminal Meru Raya in Ipoh (an interstate transportation hub) and the newly opened Terminal Kampar Putra Sentral in Kampar. Kampar Putra Sentral is supported by a high and fast-growing student population in the campus town. This student population has high propensity for travel during school breaks and festivities, as well as during weekends for leisure; and
  3. The vast opportunities for Perak Transit to replicate this successful business model. Already, it has at least three more projects in the pipeline, namely, in Bidor, Tronoh and Kuantan.
      
• We project Perak Transit’s earnings to grow by 22% and 10% in FY21–22F underpinned byhigher footfalls, and hence improved rental and advertising incomes arising from: (1) the normalisation of intrastate and interstate bus passenger travel (including the student population in Kampar) assuming the Covid-19 pandemic is to gradually come under control by 2H2021 with the availability of effective vaccines; (2) Kampar Putra Sentral’s first fullyear contribution from FY21F; and (3) the organic growth in bus passenger travel post-pandemic.
   
• At 9–11x forward earnings, we believe Perak Transit offers investors a good opportunity to own a defensive public infrastructure business that is replicable for growth at bargain valuations.

Source: AmInvest Research - 18 Jan 2021