• The only gazetted bus terminal in Ipoh. Listed in Oct 2016, Perak Transit Berhad (PTrans) owns and operates a strategic transportation hub ie. Amanjaya Terminal (operated since 2012 and the only gazetted bus terminal) and complementary bus and petrol stations in Ipoh. Its main revenue drivers consist of: (i) The Integrated Public Transportation Terminal (IPTT) which makes up 78% of gross profit due to its high margins of 87%, followed by (ii) Public Bus Services (19% of gross profit), and (iii) Petrol Station Operations (3% of gross profit).

• Meanwhile, Ptrans is seeking to migrate to the Main Board to fit into its strategy to draw investors from different segments and enhance its corporate reputation after fulfilling the criteria for a Main Board transfer as the group has registered a collective net profit of RM54.5m over the past three years and RM7.9m in its latest quarter (vs listing requirements of RM20m and a quarterly net profit of RM6m for the latest).

• Replicating terminal business in other parts of Perak and Malaysia. Following the success of running Terminal AmanJaya, the company is building a lifestyle-centric bus terminal in Kampar (slated for completion by 2H18 and has a net lettable area 400k sq ft vs 49k sq ft at Amanjaya) to cater to the demography
• According to the management, Kampar town has been identified as a suitable location for the next terminal due to its ever growing population driven by increased economic activities from: (i) higher learning institutions such as TAR College, UTAR, Westlake International School, while upcoming institutions include UCSI University and Metropolitan College, (ii) new townships and development plans (eg Taman Bandar Baru), (iii) various hypermarkets to cater to the increasing demand (i.e. Tesco, Giant, Econsave), and (iv) its strategic location close to the North South Expressway.
• After the completion of the Kampar Terminal, the company plans to build other terminals in Bidor and Tronoh (by 2H19), Perak as well as other states in Malaysia. Although discussions are still at its infancy, other bus terminals (beyond Perak state) that could be in the pipeline for P Trans include, Temerloh Sentral, Pahang, Terminal Kemaman, Terengganu and Terminal Kota Bharu, Kelantan.

• Stable earnings and high barrier to entry. We believe Aman Jaya Terminal stands to dominate due to its monopolistic business nature and the high barriers of entry (high land costs and construction costs) as it is the only gazetted bus terminal in Ipoh. Meanwhile, the weak RM, Visit Perak Year 2017, the opening of Animation Theme Park by 2H17 (about 5km from Aman Jaya Terminal) and SEA Games should provide strong FY17 earnings growth catalysts while FY18-19 impetus should derive from the operation of Kampar terminal (scheduled in 2H18).

• Long term technical objective near RM0.31. We believe Ptrans is in the midst of staging a decisive neckline resistance breakout soon (near RM0.27) as share price is closing above all the key SMAs, supported by bullish hourly chart and improving daily technicals. A decisive breakout above RM0.27 and RM0.275 (52-week high) will spur prices higher to our LT target at RM0.31. Meanwhile, key supports are RM0.24-0.25. Cut loss at RM0.235.

Source: Hong Leong Investment Bank Research - 25 Apr 2017