Investment Highlights

• We maintain BUY on Perak Transit (PTrans) with an unchanged fair value (FV) of RM1.62/share, pegged to a fully-diluted FY23F PE of 20x - in line with its 3-year average. Our FV also reflects our 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.

• Perak Transit’s FY22 core net profit (CNP) of RM60mil came in within expectations, meeting our forecast but slightly falling short of consensus estimates by 3%. Hence, we maintain our FY23F-24F earnings while introducing FY25 net profit with a steady 5% growth backed by resilient recurring income from its integrated public transportation terminal (IPTT) operations.

• The group also declared an interim dividend of 0.75 sen/share, bringing FY22 dividend per share to 3.05 sen which represents a payout ratio of 37% (compared to 38% in FY21 and our assumption of 40%).

• YoY, Perak Transit’s FY22 revenue rose by 23% YoY to RM171mil, mainly driven by higher contribution from IPTT and petrol station operations. FY22 CNP increased by a smaller 13% YoY, as the higher earnings from IPTT were partially mitigated by weaker performance from the petrol station division and a 7%-point increase in the effective tax rate to 28% (from 22% in FY21).

• IPTT operations recorded a 23% YoY jump in FY22 revenue to RM110mil, mainly lifted by full-year rental sales from 2 logistic tenants at Terminal Meru Raya and Kampar Putra Sentral. In addition, FY22 petrol station revenue also leapt 43% YoY to RM36mil as a result of higher fuel and retail sales amid a solid recovery in the domestic economy.

• QoQ, 4QFY22 CNP slightly inched higher by 5% to RM16mil despite a 7% decline in revenue to RM43mil, as a result of higher finance costs and a 13%-point reduction in effective tax rate to 23% (vs 36% in 3QFY22) due to the absence of deferred tax liabilities.

• We understand that the lower revenue mainly stemmed from weaker IPTT performance amid lower project facilitation fees. On a positive note, we also noted fresh revenue contribution of RM0.2mil from a new segment, namely telecommunication tower construction, which is involved in the provision of in-building and telecommunications solutions in Perak for edotco Malaysia.

• Despite the rather minimal contributions from the telecommunication tower construction division currently, we expect the segment’s earnings to gather momentum in the upcoming quarters as the group gradually ramp up construction progress.

• Moving forward, we remain upbeat on the group’s FY23F earnings growth prospects on the back 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. Securing more asset-light third-party terminal management contracts (TMC).
  V. Promising maiden full-year earnings contributions from the provision of in-building and telecommunications solutions in Perak for edotco Malaysia

• Given that the stock is trading at an attractive FY23F PE of 13x vs. its 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 - 23 Feb 2023