Perak Transit’s (PT) 6M19 results came in within our expectations but was below consensus. PBT rose 23.5% yoy due to the uptick in project facilitation fees (PFF), while it was largely status quo for the other operations. Maintain BUY with an unchanged TP of RM0.31. Current valuations continue to look attractive at 9.1x 2019E PER,

Within Expectations. 6M19 Earnings Driven by Higher Project Fees

Core net profit for 6M19 was flat (+1.7% yoy) as a higher effective tax rate kicked-in following the completion of PT’s Terminal Kampar construction (vs. a deferred tax writeback in 1H18 of RM2.7m). Aside from the increased project facilitation fees (PFF) of RM14m recognised in 6M19 (6M18: RM10.2m), operations from the terminal, bus and petrol station businesses remained sound; petrol stations’ revenue was lower due to lower fuel prices, but margins were inconsequential. Overall, the results were deemed in line with our expectations but below consensus, accounting for 62% and 54% of full-year estimates respectively; we expect the lumpy yet high-margin PFF contribution to moderate in 2H19.

Stronger Qoq Profits

2Q19’s core earnings and EBIT margin improved 23.6% and 3.5ppts respectively due to higher project facilitation fees recognised for the quarter. For 2H19, although we expect terminal operations revenue to be higher against 1H19 (underpinned by the partial commencement of PT’s Terminal Kampar ground floor mall operations), the start-up costs are expected to offset the corresponding earnings contribution. On a more positive note however, we forecast a strong 27% yoy growth in 2020E core net profit, driven by full-year contribution from Terminal Kampar with its commencement in 1Q20.

Maintain BUY, Price Target Unchanged at RM0.31 (11.4x CY20E P/E)

We Keep Our Earnings Estimates Unchanged. We Reiterate Our BUY Recommendation on the Stock With An Unchanged SOTP-derived TP of RM0.31, which implies a 2020E PER target of 11.4x. 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 expansions. Downside risks: (i) regulatory overhang; (ii) Phase 2 disruption at its Kampar Terminal.

Source: Affin Hwang Research - 23 Aug 2019