Investment Highlights

• We maintain BUY on Perak Transit (PTrans) with a slightly  lower fair value (FV) of RM1.54/share (from RM1.62/share  previously), pegged to a rolled-forward FY24F PE of 19x – 1 standard deviation above its 3-year FY17-FY19 pre-pandemic average PE of 16x. Our FV also reflects our  unchanged 3-star ESG rating.

• Our valuation multiple of 19x for PTrans is also on par with  our target PE for MAHB given the comparable business  model between the operations of an airport and a modern  public transport terminal.

• We keep FY23F-25F earnings unchanged as PTrans’  1QFY23 core net profit (CNP) of RM15.2mil met  expectations at 22% of our FY23F net profit and  consensus’. The group declared an interim dividend of  0.75 sen/share, which represents a payout ratio of 36%  (fairly in line with our assumptions of 35%).

• YoY, 1QFY23 revenue was up by 17% to RM47mil, mainly  driven by higher contribution from the integrated public  transportation terminal (IPTT) segment amid higher  contribution of project facilitation fee and revenue sharing  from logistic tenants. Nevertheless, 1QFY23 CNP rose by  a smaller quantum of 6% YoY as the higher sales were  partially dragged by higher operating expenses, finance  costs and tax expenses.

• QoQ, 1QFY23 revenue increased by 11%, again due to  higher contribution from the IPTTT segment as a result of  higher project facilitation fee recorded for the quarter.  Despite the rise in revenue, higher operating expenses  and a 7%-point spike in effective tax rate to 29% (vs 23%  in 4QFY22) weighed on the bottomline, with the 1QFY23  CNP declining by 4% QoQ.

• Meanwhile, we note that the telecommunication tower  construction division recorded a rather unexciting  revenue of RM0.3mil (+56% QoQ). Despite the lukewarm  revenue contribution from the division currently, we  believe the segment’s earnings will gradually increase in  the upcoming quarters as the group ramps up  construction progress of new towers.

• Over the short-to-medium term, we anticipate continued  growth in the group’s earnings backed by sustainable  growth in the IPTT segment amid gradual footfall recovery  in the post-pandemic era coupled with sequential  improvement in Kampar Putra Sentral’s occupancy rate  with a target to hit 70% (from 50% currently) over the  coming years

• In addition, the impending commencement of Bidor Sentral’s maiden earnings contribution from 2HFY23  onwards would also provide further momentum to the group’s growth trajectory.

• Given that the stock is trading at an attractive FY24F PE of 12x vs. its 3-year FY17-19 pre-pandemic average of  16x, 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 May 2023