Perak Transit’s (PT) 1Q19 results were in line with our and consensus expectations, accounting for 25% and 23% of FY19 estimates respectively. PBT rose 54% yoy, predominantly due to increased recognition of high-margin project facilitation fees, while other operations remained largely stable. We look forward to the full commencement of PT’s new Kampar Terminal, which should spur the next leg of earnings expansion. Reaffirm BUY with a revised TP of RM0.38. Valuation is looking attractive at 8.0x 2019E PER.

Broadly Within Expectations

Core earnings were flat yoy at RM8.4m, whereby the higher project facilitation fees (PFF) recorded were offset by the reversal of tax income recognition during the quarter. Operationally, the group’s other core businesses have remained stable, apart from higher terminal operations revenue due to revision of rental rates in April 2018, as well as lower petrol-station collections due to lower pump prices yoy. EBIT margin improvement of 8.2ppts yoy is largely attributable to the increase in PFF, which is highly profitable yet lumpy in nature.

Kampar Terminal: Full CCC Expected to be Obtained in 2H19

PT received a Partial Certificate of Completion and Compliance (CCC) for its ground-floor operations (bus terminal and hotel lobby) in May, which was slightly later than our earlier expectation to receive the partial CCC in March 2019. We now expect the full CCC to be received in 3Q19, which should see the terminal go fully operational from 4Q19 after renovation and fitting works. Meanwhile, we understand that PT's management have been undertaking advanced negotiations with multiple prospective tenants, while already securing a cinema operator as one of its anchor tenants.

Maintain BUY

We tweak 2019-21E EPS by approximately 1%, while incorporating our assumptions of higher project facilitation fees alongside tax expenses in 2019E. After rolling forward our valuation horizon to 2020E, we reaffirm our BUY call on Perak Transit with a higher SOTP-derived TP of RM0.38 (from RM0.36). We continue to 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 - 24 May 2019