Investment Highlights

• We maintain BUY on Perak Transit (PTran) with a higher fair value (FV) of RM1.62/share (from RM1.36/share previously) due to higher earnings expectations and raising FY23F PE from 18x previously to 20x - in line with its 3-year average. Our FV also reflects an unchanged 3- star ESG rating.

• Our benchmark valuation continues to imply a 20% discount to our FY23F target PE of 25x for Malaysia Airports Holdings, given the similarities between the operations of an airport and a modern public bus terminal.

• We fine-tuned FY22F earnings on slightly stronger revenue growth from the integrated public transportation terminal segment, while increasing FY23F/FY24F earnings by 7%/12% due to additional earnings contributions from the provision of in-building and telecommunications solutions in Perak for edotco Malaysia.

• To recap, PTran has earlier entered into a master framework agreement with edotco Malaysia’s 79%-owned On Site Services to provide construction and engineering services for the construction of telecommunication towers.

• The agreement marks another effort by the group to further deepen its collaboration with edotco Malaysia, after the strategic alliance formed back in June for PTran to provide in-building and telecommunications solutions and structures in buildings or lands in Perak. It is also in line with the group’s long-term strategy to diversify its earning base and reduce dependency on existing businesses.

• We expect the group to kick start the construction of telecommunication towers in the coming months, thus providing further growth momentum from FY23F onwards.

• Pending more clarity on the project, our back-of-envelop calculations suggest that this venture could contribute additional profit after tax of RM8mil-RM10mil to FY23F-24F core earnings, assuming successful construction of 100 units of telecommunications towers per annum.

• We are optimistic on the group’s recent strategic alliance with edotco Malaysia given the enormous growth opportunities from this telecommunication venture, mainly premised on the Malaysian government’s commitment to spend RM4.6bil under the JENDELA programme to develop 4G infrastructure and network in rural areas.

Source: AmInvest Research - 12 Dec 2022