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.

• We keep our forecasts unchanged following an analyst briefing yesterday. These are the key takeaways:
  • Terminal Meru Raya’s FY22 rental revenue grew 31% YoY to RM34mil in tandem with significantly higher passenger footfall (+68% YoY) amid robust postpandemic recovery. The terminal’s occupancy rate currently stands at 72%, which is at the lower end of management’s guidance of 70-80% range as a result of the ongoing process of renewing rental contracts with a few existing tenants.
  • On the other hand, Kampar Putra Sentral’s FY22 rental revenue soared by a staggering 88% YoY mainly due to the full-year contribution from 2 logistic tenants. The terminal achieved a flat occupancy rate of 50% as at the end of FY22, with a management target to reach 70% in 2HFY23, supported by the official start-up of 2 more sizeable tenants including a cinema and bowling alley.
  • PTrans received a total rental revenue of RM39mil from 2 logistic tenants in FY22, which is above management guidance of RM30-36mil per annum. We understand that there is scant progress towards securing another logistics tenant as management aims to secure customers from other industries.
  • Meanwhile, we also note that the construction of Bidor Sentral has reached 54% completion in 4QFY22 and is on track to commence operations in the second half of 2023. The group is also currently in talks to boost occupancy take-up with several potential tenants as well as the existing client involved in advertising and promotion.
  • The outstanding order book value for project facilitation fee operations remains at RM25mil currently, which could sustain the segment’s revenue over the next 4 quarters. Even so, we understand that this order book could deplete given the group’s longterm strategy to gradually diversify earnings stream away from this segment’s lumpy revenue trend in the past.
  • On the new segment involving telecommunication tower construction, management revealed that it is currently working on 2 sites in Perak with 40% completion as at the end of 4QFY22. Management also expects to win construction contracts for another 4 sites soon, with a target to complete at least 30 sites per annum for the upcoming 1-2 years.
• 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 with a target to hit 70% over the coming years (from 50% currently) on improving domestic economic outlook;
  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); and
  V. Promising maiden full-year earnings contributions from the provision of in-building and telecommunication 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 a good opportunity for investors 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 Feb 2023