Investment Highlights

• We maintain BUY on Perak Transit at an unchanged fair value (FV) of RM1.09, based on 15x fully-diluted FY22F EPS. This is at a 30% discount to our FY22F target PE of 22x for Malaysia Airports. There is no ESG adjustment for our 3- star rating.

• We continue to benchmark Perak Transit’s valuation to Malaysia Airports given the many similarities between the operations of an airport and a modern public transport terminal.

• Our forecasts are maintained as Perak Transit’s FY21 results came in well within our and the consensus’ net profit expectations.

• Perak Transit’s FY21 turnover rose 16% YoY mainly due to higher contribution from its integrated public transportation terminal (IPTT) operations. Together with cost containment efforts and lower finance cost, this drove up the group’s FY21 core net profit by 27% to RM53mil.

• The group’s IPTT operations segment recorded a 26% YoY increase in revenue for FY21, backed by the new advertising income stream from Kampar Putra Sentral which opened in September 2020, as well as new rental income from the logistics/warehousing and distribution tenants for Terminal Meru Raya and Kampar Putra Sentral beginning in September 2021.

• Meanwhile, FY21 revenue from petrol station operations expanded by 8% YoY on higher fuel price. However, the bus operation’s revenue declined by 5% YoY, dragged by the longer movement restrictions enforced during the period as compared to a year ago.

• QoQ, the group’s 4QFY21 revenue fell 6% while core net profit contracted 7% QoQ mainly due to zero recognition of project facilitation fee as projects were not completed during the quarter. We understand from management that the project facilitation fee will be recognized later in 1QFY22.

• Key takeaways from its analysts briefing yesterday are:

1. The business outlook is improving as 74% of the population in Perak had been fully vaccinated. In addition, the company witnessed higher footfall traffic in 4QFY21 following the government’s decision to lift interstate travel from 11 October 2021 onwards.
2. Over the mid-to-long term, the group’s growth drivers will come from:
   (i) higher rental rates for its terminals upon the resumption of post-pandemic footfalls;
   (ii) a higher contribution from Kampar Putra Sentral stemming from the expiry of the free-rental period and a higher occupancy rate as student population returns from March FY22 onwards (to recap, the occupancy rate of Kampar Putra Sentral’s commercial area currently stands at about 50% and tenants enjoy free-rental amidst the MCO);
   (iii) Bidor Sentral’s maiden revenue contribution from 2HFY23. The construction on Bidor Sentral already commenced in FY21;
   (iv) full-year recognition of rental from two of its logistic business tenants in FY22F with an expected annual contribution of RM30mil–RM36mil. Additional potential upside stems from the growth of tenants under the revenue-sharing model;
   (v) securing more asset-light third-party terminal management contracts (TMC).
3. For TMCs, Perak Transit continues to talk to third-party bus terminals for potential new projects/contracts although discussions have somewhat been delayed due to the MCO. For existing contracts, Terminal Bas Shahab Perdana remains on track to commence operation by April 2022 while revenue from Terminal Sentral Kuantan is stable as the terminal management fees are paid annually on a contract basis.

• Moving forward, we believe Perak Transit is one of the beneficiaries from the relaxation of movement restrictions, largely driven by:
  (i) higher rental income from IPTT segment as footfalls recover;
  (ii) improved revenue from petrol station operations on vehicle traffic recovery; and
  (iii) recovery from bus operations in line with the government’s decision to allow interstate travel.

• We continue to like Perak Transit for:

1. Its unique business model in operating modern public transport terminals that emulate airports with spacious and brightly-lit shopping, dining and waiting areas as well as clean public facilities, particularly washrooms. These entice visitors to spend more money and time in the terminals prior to their departure or upon their arrival, or while sending off or picking up their loved ones. This captive traffic is monetised in the form of rental incomes from commercial units and advertising space within the terminal;
2. Having proven the commercial viability of this business model in its interstate transportation hubs of Terminal Meru Raya in Ipoh and the newly-opened Kampar Putra Sentral. Kampar Putra Sentral is also buoyed by a fastgrowing 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 3 more projects in the pipeline in Bidor, Tronoh and Alor Setar.

• Given an unjustified FY22F PE of 9x vs 3-year average of over 20x, we believe Perak Transit offers investors a good opportunity to own a defensive public infrastructure business that is replicable for growth at bargain valuations and decent dividend yields of 4%.

Source: AmInvest Research - 23 Feb 2022