We upgrade Perak Transit (PT) to BUY (from HOLD) and raise our TP to RM0.36 (from RM0.26). Recent news flow and our discussions with management point to PT’s terminal business remaining resilient, and our earlier concerns on the restructuring of the governing body now seem overblown. Meanwhile, PT’s Kampar Terminal Phase 1 is set for completion by end-2018. Overall, we like PT for its proven track record in the underserved bus-terminal business, resilient earnings profile, and undemanding valuation of 12.6x 2019E PER.

After All, It's Business as Usual

Following our meeting with PT’s management, we conclude that our earlier concerns on regulatory risk were overblown. Backed by the company’s strong track record of operating the Ipoh Amanjaya terminal and Ipoh’s stage buses, PT is likely to retain its terminal license slated for renewal in January 2019. Its Kampar Terminal, which had been green-lighted earlier before commencing construction, is unlikely to see an approval u-turn from the newly formed Land Public Transport Agency (APAD).

Kampar Terminal Is Set to Drive Double-digit Earnings CAGR

The Kampar Terminal Project Phase 1 is on track for completion in December 2018 with Phase 2 slated for completion by March 2019. Management is confident on the project - discussions with F&B, cinema and supermarket operators are ongoing with an indicative take-up for 70% of the F&B space. All in, we expect the Kampar bus terminal to open on schedule by end-2018, followed by staggered openings of various facilities (ie, cinema, badminton court, gym, library, hotel, etc) throughout 2019.

Upgrading to BUY With a Higher TP of RM0.36

We revise our 2018-20E EPS by +10.6%/-4.6%/+3.1%, after imputing a higher project-facilitation fee income and contribution from the Kampar Terminal, somewhat offset by the c.10% dilution from the recent private placement and new terminal start-up losses in 2019E. In tandem, we upgrade our call to BUY with a higher SOTP-based 12-month TP of RM0.36 (from RM0.26). PT’s imminent move to the Main Market could be a re-rating catalyst (pending SC approval). We like PT for its: i) proven track record in the niche, underserved bus-terminal business; ii) strong earnings profile from its existing core business; and iii) earnings growth led by the Kampar Terminal and upcoming terminal expansion. Downside risks: regulatory overhang, construction disruption at its Kampar Terminal.

Source: Affin Hwang Research - 10 Oct 2018