Investment Highlights

• We maintain our forecasts and fair value of RM1.25 based on 15x its FY22F EPS, at a 30% discount to our FY22F target PE of 22x for Malaysia Airports. We see many similarities between this operator of modern public transport terminals and an airport operator. Maintain BUY.

• Perak Transit FY20 results met our forecast but beat consensus estimates by 6%.

• The group’s FY20 turnover shrank 4% YoY as its operations, particularly bus service and petrol kiosks, were affected during the initial movement control order (MCO) in the early part of 2020. However, its core net profit improved by 5% YoY, mainly due to higher contributions from the high-margin integrated public transportation terminal (IPTT) operations.

• For FY20, Perak Transit’s IPTT operations segment recorded 27% YoY increase in revenue, backed by stronger advertising incomes and rental incomes, as well as a higher project facilitation fee (which grew by 35% YoY to RM39.6mil in FY20 vs. RM29.4mil in FY19).

• On the other hand, the revenue of its petrol station operations declined by 35% YoY, in tandem with the lower sales volume and fuel price recorded for the year due to the various MCOs in FY20. The bus operations segment also recorded a weaker revenue of 24% YoY, mainly due to the voluntarily halt of stage bus operations for 1.5 months in a bid to contain the spread of Covid-19.

• Perak Transit announced another collaboration for terminal management services yesterday (following a collaboration with Energetic Point to manage Terminal Sentral Kuantan announced in Jan 2021). This will be a 15- year collaboration commencing April 2022 (or earlier upon the completion of the renovation works) with NSS IT Solution (NSSIT), an IT company specialising in transport terminals, to operate Terminal Bas Shahab Perdana, the IPTT in Alor Setar, Kedah.

• Perak Transit’s key roles in the collaboration will be to commercialise leasable space in the IPTT while NSSIT focuses on its terminal management system. We project that the collaboration will enhance Perak Transit’s earnings by an additional RM1.5mil/year from FY23F onwards which we are reflecting in our forecasts. Perak Transit has earmarked RM6.5mil capex for this project.

• We like Perak Transit for:

1. Its unique business model, i.e. the operation of modern public transport terminals that emulate airports with spacious and brightly lit shopping, dining and waiting areas, and clean public facilities particularly the washrooms. These entice visitors 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. It having proven the commercial viability of this business model in its Terminal Meru Raya in Ipoh (an interstate transportation hub) and the newly opened Kampar Putra Sentral in Kampar. Kampar Putra Sentral is also buoyed by a high and fast-growing student population in the campus town of Kampar. This student population has high propensity to travel during school breaks and festivities, as well as during weekends for leisure; and
    
3. The vast opportunities to replicate this successful business model. Already, it has at least four more projects in the pipeline, namely, those in Bidor, Tronoh, Kuantan and Alor Setar.

• At 10–12x 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 - 24 Feb 2021