• Perak Transit reported a lower net profit of RM16.7m (-11.8% yoy) in 6M20 due to lower contribution in all its segment as a result of the MCO

• Nevertheless, we raise our 2020-22E earnings by 17-45% attributable to the increase in contribution from its Kampar IPTT
• We are upgrading Perak Transit to a BUY (from Hold) with a higher 2021 SOTP derived target price of RM0.31 (from 0.18)

1H20 Net Profit at RM16.7m, Down 11.8% Yoy

Perak Transit’s 6M20 net profit and revenue decreased 11.8% yoy and 17.2% yoy respectively to RM16.7m and RM49.1m. This decrease was attributable to the Movement Control Order (MCO) which affected contribution from all operation units. The Integrated Public Transportation Terminal operation (IPTT) saw a lower 6M20 contribution of RM25.8m (-1.5% yoy) as a result of a lower project facilitation fee recorded of RM12m vs RM13.95m in 6M19. We also gathered that the management provided a 30% rental discount for a period of 3 months as a result of the MCO. Contribution from its Bus operation fell 19% to RM12.5m due to a temporary halt in its operation – its stage bus operation was halted from 23 March 2020 to 6 May 2020 while its express bus operation was halted until 12 June 2020. Meanwhile, its petrol station revenue also decreased by 38.9% to RM10.8m due to a lower sales volume and fuel price during the period. Despite the weaker performance, the results beat both our and consensus 2020 core earnings expectations as it showed a smaller-than-expected earnings contraction from the MCO. This note marks a transfer in analyst coverage.

2Q20 EBITDA Margin Improved to 65% (+10.4ppt Qoq)

On a sequential basis, both revenue and net profit fell 34.8% and 6.5% respectively mainly attributable to the MCO which led to a lower project facilitation fee recorded (-50% qoq), and lower revenue from its bus operation (-34.5% qoq) and petrol stations (-48.3% qoq). However, its EBITDA margin improved by 10.4ppt qoq to 65% as a result of lower overall variable cost during the quarter, supported by lower fuel cost for its bus operations.

Upgrading to BUY With a Higher TP of RM0.31

We raise 2020-22E earnings by 17.3-45.3% on steady earnings recovery from its existing operations and incorporate a higher expected earnings contribution from the full operation of its Kampar IPTT. We upgrade our rating on Perak Transit from a Hold to a BUY with a higher 2021E SOTP-derived TP of RM0.31 (from RM0.18). We like Perak Transit for its robust earnings track record, with sustainable growth prospects led by its terminal expansion plans.

Source: Affin Hwang Research - 21 Aug 2020