Growth Catalyst From Terminal Kampar

We recently visited Perak Transit’s construction site at Terminal Kampar. Terminal Kampar is strategically located 5 minutes away from Universiti Tunku Abdul Rahman (UTAR) and Tenby International school. The construction of Terminal Kampar is on track and we expect the facility to commence operations by 4Q18. In this report, we analyse the potential earnings contributions from PT’s new terminal. Maintain BUY with a higher DCF derived TP of RM0.40, providing upside potential of 33.1%.

A New Commercial Hub for UTAR Students

Perak Transit (PT) intends to build an integrated lifestyle hub, which will have its own hotel and provide other facilities like badminton courts, gym, cinema, library and bowling alley, within the new 480k sf Kampar bus terminal. We visited the vicinity of Kampar, which has limited places for recreational purpose, for at least the c. 30k student population. We think the new integrated lifestyle hub will likely attract UTAR students and in turn attract more F&B and retail businesses.

Proceeds From Warrants to Finance Working Capital Requirements

With approximately 400k sf of commercial space available, rental income and adex revenue will be additional income drivers for the bus terminal. Promotional events and advertisements have contributed significantly to the group’s revenue, but even more pronounced to its profitability. We are expecting PT’s revenue and core net profit in 2019E to grow by 24.2% and 51.0% yoy, when the new terminal is fully operational.

Maintain BUY and Higher TP of RM0.40

We maintain our Buy call with a higher TP of RM0.40 based on DCF, providing 33.1% upside. We changed our valuation methodology from a straight PE to DCF, as it is a better way to capture the Group’s mid to longterm earnings prospects. We continue to like Perak Transit for its (i) attractiveness as a monopoly business; (ii) strong earnings growth from its existing core businesses; and (iii) long-term potential from the upcoming terminal in Kampar. Key risk includes a slowdown in construction of Kampar terminal.

Source: Affin Hwang Research - 21 Jun 2017