Perak Transit (PT)’s 2018 earnings rose by 24% to RM35.7m – in line with our expectations, but above consensus. The strong performance came on the back of higher revenue (+7%) and margin improvement, mainly due to utilised investment tax allowances. Construction of PT’s Kampar Terminal has completed on time, and is set for Phase 1 commencement, pending regulatory approval. We remain positive on PT’s outlook and expect meaningful earnings contribution from its Kampar Terminal operations from 2H19. PT is currently trading at an attractive 10x 2019E PER. Reaffirm BUY and TP of RM0.36.

2018 Results - Within Expectations

PT’s 2018 net profit grew by 23.8% yoy to RM35.7m, which is attributable to higher revenue from its Amanjaya terminal businesses and petrol station operations, alongside net positive tax income of RM3.1m for the year due to higher investment tax allowances utilised. EBITDA margin improved 1.1ppts yoy due to higher project facilitation fees (highly profitable) recorded as well as revised A&P rental rates in 2Q18, which mitigated depreciation and interest costs arising from the newly-built Kampar Terminal. Overall, the results are in-line with our expectations but tracked above consensus, accounting for 104% and 109% of FY18 estimates respectively.

Next Phase of Growth From Kampar Terminal Operations

We understand that PT is obtaining regulatory approval to commence Phase 1 of Kampar Terminal in 1Q19, which comprises of bus operations and pre-opening of outlets located on the ground floor. Phase 2, which will see the terminal go fully operational, and is still on schedule for commencement in 2Q19. We expect Kampar Terminal to contribute meaningfully to group earnings from 2H19. Meanwhile, start-up costs as well as normalising tax allowance recognition are foreseen to mute headline earnings for 2019.

Maintain BUY

No major changes to our 2019-20E EPS while we also introduce our 2021E estimates. We reaffirm our BUY call on PT with an unchanged CY19E TP of RM0.36 based on DCF 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: (i) regulatory overhang; (ii) Phase 2 disruption at its Kampar Terminal.

Source: Affin Hwang Research - 22 Feb 2019