Surpassed Expectations

Perak Transit’s (PT) 1H18 earnings stood well above expectations. The surprise was predominantly due to higher-than-expected project facilitation fees recorded in 2Q18, which is difficult to forecast yet highmargin in nature. We maintain our forecasts while awaiting management’s briefing on Tuesday, which is expected to shed further light on PT’s existing as well as future operations under the Ministry of Transport’s newly-formed APAD which replaces the effectively dissolved SPAD’s policy implementation duties. Maintain HOLD.

Strong Set of Results, Above Expectations

PT’s 1H18 pre-tax profit came in well above our expectations, constituting 65% of FY18 estimates despite revenue coming in-line at 53% of FY18E, mainly on the back of higher project facilitation fees (PFF) recorded in 2Q18 – which are lumpy and difficult to forecast, yet accounts for a substantial portion of PT’s profitability. 1H18 revenue growth (+4.2% yoy) was recorded across its non-PFF operating segments, aside from its bus operations which was flattish in 1H18. Higher investment tax allowances were also recognised for 1H18, leading to a strong net profit growth of 35% yoy.

Pending Clarification From Management

While PT’s existing operations remained robust, we await updates from management in relation to the renewal of Amanjaya terminal’s license that is due for expiry in January 2019 while its Kampar terminal, although construction is well underway, is also subject to final approval by the relevant authorities, in particular with the newly formed APAD as well as JPJ under the MoT, replacing SPAD which has been a key benefactor of PT’s terminal and bus operations in the past.

Maintain HOLD

For the time being, we maintain our earnings forecasts for PT and subsequently maintain HOLD with an unchanged CY19E TP of RM0.26 based on DCF valuation. PT’s proposed Main Market transfer listing is a potential share price catalyst. Key merits of PT include: (i) attractiveness as a monopoly business; (ii) strong earnings profile from its existing core businesses; and (iii) long-term potential from the upcoming terminal expansions. Key upside/downside risks include higher-than-expected PFF fees recorded/disruption to construction of the Kampar terminal.

Source: Affin Hwang Research - 21 Aug 2018