Investment Highlights

• We maintain BUY on Perak Transit (PTrans) with an unchanged fair value (FV) of RM1.54/share, pegged to a  FY24F PE of 19x – 1 standard deviation above its 3-year  FY17-FY19 pre-pandemic average 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 our forecasts unchanged following an analyst  briefing yesterday. These are the key takeaways:
  • The near-term outlook for PTrans’ integrated public  transportation terminal (IPTT) remains solid as  Terminal Meru Raya’s occupancy rate improved to  75% at the end of 1QFY23 from 72% in 4QFY22 while  Kampar Putra Sentral increased to 55% in 1QFY23  from 50% in 4QFY22.
  • Meanwhile, the ongoing construction of Bidor Sentral  has reached 63% completion (from 54% in 4QFY22) as  at the end of 1QFY23 and is on track to be completed  by the end of 2023. We also understand that talks with existing clients to take up the advertising and  promotion and retail space of the new terminal remain  steadily underway.
  • The higher project facilitation fee recorded in 1QFY23  was mainly due to the completion of projects with  higher gross development costs. The outstanding  order book value for project facilitation fee operations  stood at RM25mil currently, which could sustain this segment’s revenue over the next 4 quarters. 
  • The group has completed construction works for 2  telecommunication towers in Perak. It also managed to  secure the purchase order (PO) for another unit in  Kelantan and will subsequently commence construction work for the telecommunication tower soon. We understand that the group is targeting to  secure at least 30 POs by the end of 2023. 
  • PTrans also issued the third Sukuk Murabahah tranche of RM250mil mainly to fund the preliminary and construction costs of its new integrated public transportation terminal in Tronoh, Perak and working capital requirement. Of the RM250mil raised, we note  that RM170mil or 68% is earmarked to fund the expansion project in Tronoh with the rest budgeted for working capital.
  • Management expects to officially kick off the construction of the new terminal in Tronoh in 1HFY24. The terminal, expected to cost RM320mil, will cover a total area of 16 acres (5x more than Kampar Putra Sentral’s land size of 3 acres).
• 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 post-pandemic footfall recovery coupled with sequential improvement  in Kampar Putra Sentral’s occupancy rate that has a target to reach 70% from 55% currently over the coming  quarters.

• In addition, the impending commencement of Bidor Sentral’s maiden earnings contribution as well as the  expansion of a new terminal in Tronoh 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 - 24 May 2023