Investment Highlights

• We maintain BUY on Perak Transit with a higher fair value (FV) of RM1.14/share (vs. RM1.09/share previously) based on 15x PE on a rolled-forward fully-diluted FY23F EPS. Our FV reflects a neutral 3-star rating and is at a 30% discount to our FY22F target PE of 22x for Malaysia Airports.

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

• Perak Transit’s 1QFY22 core net profit (CNP) of RM14.3mil came in within our expectation at 24% of our forecast and 25% of consensus’ FY22F earnings. Thus, we make no changes to our forecasts.

• Perak Transit’s 1QFY22 turnover rose 15% YoY to RM41mil mainly driven by higher contribution from its integrated public transportation terminal (IPTT) operations and petrol station operations. However, its CNP expanded by only 6%, attributed to increased deferred tax liabilities which led to higher tax charge for the quarter.

• The group’s IPTT operation recorded a 12% YoY rise in 1QFY22 revenue to RM26mil, backed by new rental income from the logistics/warehousing and distribution tenants for both Terminal Meru Raya and Kampar Putra Sentral beginning September 2021.

• Meanwhile, 1QFY22 revenue from petrol station operations expanded by 34% YoY to RM8mil on higher fuel sales volume and fuel price. The bus operation’s revenue rose 7% YoY to RM6mil, mainly contributed by the award of a new stage bus contract (for the routes in Larut, Matang and Selama districts) in 4QFY21, coupled with stronger contribution from the Interim Stage Bus Support Fund and Stage Bus Service Transformation programmes.

• QoQ, its revenue climbed by 23% and CNP grew 12%, mainly due to the recognition of project facilitation fees (PFF) amounting to RM7.3mil in this quarter. There was no contribution from PFF in 4QFY21.

• As at the end of March 2022, its PFF segment’s order book amounted to RM30mil which will be recognised over the next 12 months.

• Over the mid-to-long term, the group’s growth drivers will be from the following:
  (i) higher rental rates from its terminals upon the resumption of post-pandemic footfalls;
  (ii) stronger contribution from Kampar Putra Sentral stemming from the expiry of the free-rental period and a higher occupancy rate as the student population returns from March FY22 onwards (to recap, the occupancy rate of Kampar Putra Sentral’s commercial area currently stands at 50% and tenants enjoy free rental amidst the MCO);
  (iii) Bidor Sentral’s maiden revenue contribution from 2HFY23. The construction on Bidor Sentral has already commenced in FY21;
  (iv) full-year recognition of rental from 2 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 its revenue-sharing model;
  (v) securing more asset-light third-party terminal management contracts (TMC).

• 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 hub, Terminal Meru Raya in Ipoh and the newly-opened Kampar Putra Sentral. Kampar Putra Sentral is also buoyed by a fast-growing student population in the campus town of Kampar. This student population has a 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 that the stock is trading at an undemanding FY23F PE of 9x vs. 3-year average of over 20x, Perak Transit offers investors a good opportunity to own a defensive public infrastructure business. The group has the potential to replicate its business model for further growth.

Source: AmInvest Research - 24 May 2022