Perak Transit’s (PT) 9M19 results exceeded both market and our expectations. We were positively surprised by the recurrent project facilitation fees and lower-than-expected opex recognised in 3Q19, with pre-tax profit surging 57% yoy to RM12m during the quarter. We raise 2019-21E earnings by 11%-22% and subsequently reiterate BUY, with a higher TP of RM0.34.

Above Expectations

Net profit for 9M19 came in higher at RM27.9m (+3.6% yoy) despite the cessation of tax writebacks following the completion of Terminal Kampar’s construction. Pre-tax profit rose by 34.2% yoy to RM31.7m, mainly led by higher project facilitation fees of RM21.4m (9M18: RM14.7m) recorded in 9M19, which we previously expected to taper down in 2H19. Revenue from its terminal business and bus operations grew by 15% and 28% yoy respectively in 3Q19, owing to the commencement of Terminal Kampar’s Phase 1 (ground floor) operations and expansion of contracted bus services. Overall, 9M19’s results accounted for 79% and 92% of the street and our FY19E estimates.

Sequentially Stronger Operating Margins

PBT increased 11% qoq as margins improved (+2ppts qoq) in spite of lower recognition of the high-margin project facilitation fees of RM7.4m (2Q19: RM8m). We therefore believe that Terminal Kampar has begun to contribute positively to earnings, against our previous projection of ground-floor operations running at breakeven level. Meanwhile, although management has yet to receive full CCC for the new terminal, we nonetheless do not expect its full commencement to delay beyond 2Q20.

Maintain BUY

We raise 2019-21E earnings by 11%-22% which incorporate: (i) increased project facilitation fees assumption; (ii) better operating margins; and (iii) slight delay in Terminal Kampar’s full commencement from 1Q20 to 2Q20. We reiterate our BUY recommendation on the stock with a higher SOTPderived TP of RM0.34 (from RM0.31), now based on a fully-diluted share base as its warrants are back in-the-money. We continue to like PT for its appealing valuations and robust earnings track record, with sustainable growth prospects led by its terminal expansion plans. Downside risks: (i) regulatory overhang; (ii) Phase 2 disruption at its Kampar Terminal; and (iii) fall-off in project facilitation fees.

Source: Affin Hwang Research - 22 Nov 2019