Investment Highlights

• We maintain BUY on Perak Transit (PTrans) with a lower fair value (FV) of RM1.49/share (from RM1.59/share previously) based on lower earnings expectations pegged to a FY24F PE of 19x – close to 0.5SD above its 3-year average of 16x. Our FV also reflects an unchanged 3-star ESG rating.

• Perak Transit’s 9MFY23 core net profit (CNP) of RM47.8mil came in below expectations, accounting for 66% of our FY23F earnings. For comparison, 9MFY22 had previously accounted for 74% of its FY22 core earnings. We believe the deviation is due to lower-than-expected occupancy rates for retail shops and kiosks at Terminal Meru Raya and Kampar Putra Sentral. Hence, we trim our FY23F-25F earnings by 6%-7% mainly to account for a lower assumption of retail occupancy rates at the group’s bus terminal operations.

• The group declared a fourth interim dividend of 0.75 sen/share, bringing FY23 YTD total dividends to 2.25 sen which represents a payout ratio of 34% (compared to 38% in FY22 and our full-year projection of 35%).

• YoY, PTrans 9MFY23 revenue rose by 3.2% primarily due to the integrated public transportation terminal (IPTT) segment which offset the flattish performance of the bus and petrol station operations. Subsequently, CNP rose by a larger 8.2% due to lower tax expense.

• IPTT operations recorded a 4.8% rise in revenue to RM86.8mil, lifted by: (i) higher project facilitation fee from the completion of projects (with higher gross development costs), and (ii) increased contribution from the revenue sharing arrangement with its logistic tenants and profit sharing from terminal management services.

• On a sequential basis, PTrans 3QFY23 performance appeared flattish as CNP rose by a mere 3.6% due to declining contribution from IPTT’s project facilitation fee revenues despite a stronger contribution from the Interim Stage Bus Support Fund programme for the group’s bus operation.

• Moving forward, we expect to see an improvement in PTrans earnings growth in FY24 premised on a resilient sales performance from its bus terminals amidst the gradual improvement in footfalls, occupancy rates for retail shops and kiosks and the maiden earnings contribution from the commencement of operations at Terminal Bidor Sentral in 1HFY24.

• PTrans currently trades at FY24F PE of 14x, slightly below its 3-year average of 16x. We believe Perak Transit offers investors a good opportunity to own a defensive public infrastructure with a business model that can be replicated in other states besides Perak to drive faster prospective growth.

Source: AmInvest Research - 16 Nov 2023