Investment Highlights

• We maintain BUY on Perak Transit with a higher fair value (FV) of RM1.36/share (from RM1.06/share previousy) based on higher earnings expectations and a raised FY23F PE of 18x (from 15x). This stems from a reduced discount of 20% (from 30% earlier) to our FY22F target PE of 22x for Malaysia Airports Holdings (MAHB). Our FV also reflects our unchanged 3-star ESG rating.

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

• Perak Transit’s 9MFY22 core net profit (CNP) of RM44mil came in within expectations, accounting for 75% of our FY22F earnings. However, we raise FY23F-24F earnings by 7%-9% to account for sequential improvement in footfalls and occupancy rates within its integrated public transportation terminal (IPTT) operations.

• The group also declared a fourth interim dividend of 0.75 sen/share, bringing FY22 YTD total dividend to 2.25 sen which represents a payout ratio of 36% (compared to 38% in FY21 and our projection of 40%).

• Perak Transit’s 9MFY22 revenue jumped by 22% YoY to RM128mil, mainly driven by IPTT and petrol station operations. 9MFY22 CNP grew by a smaller 9% YoY, likely due to the razor-thin profit margins within petrol station operations as well as a 5%-point increase in effective tax rate to 30%, arising from an increase in deferred tax liabilities.

• IPTT operations posted a 16% YoY rise in 9MFY22 revenue, mainly from additional rental sales from 2 logistic tenants at Terminal Meru Raya and Kampar Putra Sentral since commencement of operations in September 2021. With the lifting of movement restrictions since April this year, 9MFY22 petrol station revenue surged by 62% YoY, backed by higher fuel and retail sales.

• QoQ, 3QFY22 CNP was flattish despite an 8% increase in revenue to RM46mil, as a result of higher finance costs and a 10%-point spike in the effective tax rate to 36% (vs 26% in 2QFY22) from an increase in deferred tax liabilities.

• The IPTT division’s 3QFY22 revenue rose by an impressive 12% QoQ, mainly from higher project facilitation fees.

• Moving forward, we expect the group to sustain its earnings growth trajectory in light of : 
  I. Resilient sales growth from its bus terminals amid gradual footfall recovery in the post-pandemic era;
  II. Sequential improvement in Kampar Putra Sentral’s occupancy rate on improving domestic economic outlook, with a target to hit 70% over the coming years (from 50% currently);
  III. Bidor Sentral’s maiden revenue contribution from 2HFY23, with the terminal’s construction already commencing since FY21;
  IV. Full-year rental recognition from 2 of its logistics business tenants in FY22F with an expected annual contribution of RM30mil–RM36mil. Additional potential upside stems from additional tenants under its revenue-sharing model;
  V. Securing more asset-light third-party terminal management contracts (TMC).
• Given that the stock is trading at an attractive FY23F PE of 15x vs. 3-year average of over 20x, Perak Transit offers investors a good opportunity to own a defensive public infrastructure business. The group also aims to replicate its recurring business model in other states besides Perak to drive faster prospective growth.

Source: AmInvest Research - 24 Nov 2022