Our first coverage of Perak Transit Berhad (“Ptrans”) was on 5 June 2021.

UPDATE ON FY2021 FULL YEAR (JAN – DEC) RESULTS

The increase in FY2021 revenue was mainly contributed by the leasing of commercial area at Terminal Meru Raya and Kampar Putra Sentral to logistic tenants since September 2021 and A&P spaces at Kampar Putra Sentral since September 2020.

The MCO 2.0 and FMCO imposed throughout FY2021 resulted in a decline in the Group’s bus operations revenue to RM24.2m (FY2020: RM25.5m).

Nevertheless, overall Group’s profitability improved as the additional source of rental income contributes directly to Ptrans’ bottom line (minimal additional operating costs). FY2021 PAT closed at an all-time high of RM53.2m.

BALANCE SHEET & LIQUIDITY POSITION

In FY2021, Ptrans issued the second tranche of RM100m Sukuk to finance the Group’s development of Terminal Bidor in Perak. With the drawdown, Ptrans’ position remains comfortable with its D/E and interest coverage ratio at 0.58x and 8.7x respectively.

Consistent with prior years, the Group remains to generate a healthy level of cash from its operations. Given the nature of the business i.e. capital intensive, the Group generates a low FCF. Having said that, we draw comfort from the fact that the Group is mainly funding its capex appropriately via Sukuk funding, instead of short-term borrowings / operational cash flow.

ANSWERING THE ELEPHANT IN THE ROOM

In FY2021, Project Facilitation segment (aggregated under IPTT operations) contributed RM39m in revenue (FY2020: RM39.5m), c.28% of Ptrans’ FY2021 revenue. No information in terms of profit contribution.

Given the significance and the lack of disclosure by management on the segment, investors’ concerns were always around the segment’s order book visibility, profit sustainability, outlook, etc.

Having the opportunity to interact with Management i.e. Dato’ Sri Cheong recently, we have penned down several discussion points which may be helpful, as follows:

• The tenure of a typical project facilitation contract is usually a year with revenue/fees structured to only be recognised and received at the end of the contract (upon delivery of outcome). These contracts are non-recurring in nature
• Costs associated with this segment are primarily personnel costs. Dato’ Sri Cheong plays a vital role in advising clients given his >20 years of industry experience
• Orderbook visibility as of March 2022 remains healthy with a year of visibility, to the end of 2023
• Management’s ability to disclose information such as clienteles, project track records, order books, etc is restricted by the Non-disclosure agreement (“NDA”) signed with all its clients
• Within the next few years, contribution from this segment is expected to reduce gradually. In this regard, management has started the Terminal Management Services segment to replace the contribution from Project Facilitation in years to come.

Following our interaction with Management, we walked away slightly comforted although uncertainties remain on its contribution (revenue and profit) forward.

CORPORATE UPDATES

1. Development of Bidor Sentral has started and is estimated to be complete in 2H 2023.

2. Rental income is expected to increase in FY2022, primarily due to new rental leases executed with two logistic tenants since September 2021. The return of student population to Kampar Putra Sentral in 2H2022 is expected to bring increased footfall to the building, indirectly contributing to higher income.

3. In addition to the existing two (2) Terminal Management Contracts, the management targets to secure additional 3 – 4 such contracts in FY22.

4. Minimal or insignificant development for the other segments i.e. stage bus operation, petrol stations, and mining management.

OUR VALUATION

We are optimistic about the Group’s prospects as Malaysia reopens its borders and transitions into the endemic phase.

At RM0.59, the Group is valued at less than 7x FY22 PE / a 20% margin of safety compared to our base case fair value of RM0.74. However, a key risk to be taken into account in regard to its Project Facilitation segment (as described above).