Investment Highlights

• We maintain Buy on Perak Transit with a higher fair value (FV) of RM1.59/share (from an earlier RM1.55/share), pegged to a FY23F PE of 19x – 1SD above its 3-year FY17- FY19 pre-pandemic average of 16x. Our fair value reflects our unchanged 3-star ESG rating.

• Our higher fair value stems from a higher FY23F core EPS of 8.37 sen, up 3% from an earlier estimate of 8.13 sen due to a lower effective tax rate assumption of 23%.

• Perak Transit recently announced that it had secured approval for an investment tax allowance (ITA) from the Ministry of Finance (MOF) on qualifying capital expenditure (capex) for the development of Terminal Bidor Sentral.

• The ITA is granted 50% of qualifying capex (excluding land acquisition cost), to be deducted against 50% of statutory income of the bus terminal activity of its almost whollyowned The Combined Bus Services (TCBS).

• The ITA is subject to several conditions, which are:
  • The qualifying capital is limited to development of Terminal Bidor Sentral (excluding land cost);
  • TCBS must invest at least RM130mil in fixed assets for Terminal Bidor Sentral (excluding land) within a 5-year development period between 28 April 2021 to 27 April 2026;
  • Installation of solar panels in Terminal Bidor Sentral to generate 250,000 kWh of energy between 28 April 2021 to 27 April 2026; and
  • Acquisition of minimum 15 electric buses by TCB by 27 April 2026.
• Assuming a gross capex of RM135mil (based on the estimated cost of the terminal) distributed evenly against a period of 5 years (starting from 4QFY23F), we estimate this will raise FY23F-FY25F core profit after tax (PAT) by 3%-6%.

• Terminal Bidor Sentral is expected to be completed by end-FY23. As at 31 July 2023, management had reported that it has achieved 75% progress completion.

• Given that the stock is trading at an attractive FY24F PE of 13x 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 accelerate its growth.

Source: AmInvest Research - 13 Oct 2023