Perak Transit (PT) delivered another good set of results which we deem to be above expectations. 9M18 earnings rose 32% yoy, primarily due to higher recognition of investment tax allowances for its bus terminal projects. PT’s Kampar Terminal is on track for completion by end-2018 and is set to drive earnings growth from 2019 onwards. We raise FY18-19E EPS to reflect lower tax rates and subsequently maintain BUY on PT, with an unchanged target price of RM0.36.

Above Expectations

PT’s core net profit surged 32% to RM26.9m, which surprised us due to higher-than-expected utilisation of tax allowances for its terminal projects. 9M18 pre-tax profit of RM23.6m (-6.1% yoy) came in within our expectations however, constituting 79% of FY18E estimates. The slight PBT decline is mainly attributable to lower project facilitation fees (9M18: RM14.7m, -4.9% yoy) which are high-margin yet lumpy in nature, as well as higher depreciation costs arising from the upcoming Kampar Terminal. Nevertheless, its integrated terminal, petrol station as well as bus operations remained sound, spurring top-line growth of 4.3% yoy to RM85m in 9M18.

Heading Into a Pivotal 4Q18

Phase 1 of PT’s Kampar Terminal is on track to commence in 4Q18, which will operationalise the bus terminal as well as rental of shops and kiosks located on the ground floor. Subsequently, a full-ramp up under Phase 2 – advertising & promotion (A&P) services, opening of F&B / lifestyle outlets and other facilities including a hotel, cinema and sports hub – should also commence by 2Q19, tapping into a large student population of ~30k as well as residents from surrounding towns. Meanwhile, we also expect PT to obtain renewal of license for its Ipoh Amanjaya Terminal due Jan19 soon.

Maintain BUY

We raise FY18-19E EPS by 27%/10% respectively to account for net positive taxation this year, and also pencil in a 0% effective tax rate in FY19. Our BUY call on PT is maintained with an unchanged CY19E TP of RM0.36, based on SOTP valuation. 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, Phase 2 disruption at its Kampar Terminal.

Source: Affin Hwang Research - 23 Nov 2018