Investment Merit

We like PTRANS for its stable recurring earnings model (70% of gross profit), and its catalytic growth in FY19 (+66% YoY) once contributions from Terminal Kampar kicks in. Investors should look out for a potential graduation to the Main Board (from ACE) which could act as a sentiment booster. Trading Buy with a Fair Value of RM0.350 on FY19E PER of 14x.

New Kampar Terminal, a FY19 story. Perak Transit (PTRANS) is undertaking the development of a new bus terminal in Kampar, slated for completion by 4Q18. We believe Kampar Terminal will serve well as a transportation hub cum lifestyle mall as it is located in a university town with UTAR, Kolej TAR and Westlake International School amidst a growing population. Accordingly, we expect terminal revenue to be driven by; (i) rented spaces for retail outlets and (ii) advertising and promotion (A&P) revenue - this would increase FY19E top-line by 28% to RM134m on estimated gross margin of 87%, similar to Terminal AmanJaya (refer overleaf).

Stable recurring income model. PTRANS main revenue driver is: (i) The Integrated Public Transportation Terminal (IPTT) at Terminal AmanJaya, consisting of A&P revenue, rental of shops and project facilitation fee, making up 79% of gross profit on high gross margins of 87%, (ii) Public Bus Services (19% of gross profit) on 29% gross margins, and (iii) Petrol Station Operations (2% of gross profit) with 4% gross margins – of which recurring income constitutes 70% of gross profit and is largely driven by healthy passenger traffic numbers at Terminal AmanJaya at 5.3% CAGR from CY14-16. The project facilitation fee is considered the icing on the cake as consultation services are rendered on an ad-hoc basis. FY16 chalked up RM14m revenue on high gross margins of 80% (which has grown more than 3-fold since CY14) and we believe this quantum is sustainable in FY17-19 due to requirements for more terminals at second-tier cities in other states in Malaysia. However, variations in actual vs. estimated consultation services fees will be a major earnings swing factor given the high margins.

Potential Main Market listing in FY18? There is a strong potential for PTRANS to transfer its listing to the Main Market (from ACE market) in FY18 given its decent profit track record since listing (in Oct-16). 1H17 earnings was up 92% to RM13.9m, with contributions from project facilitation fees only kicking in 2H16, while we expect 10% growth in FY17 CNP. We believe a transfer listing is a strong catalyst and will bode well for share price sentiment.

Expect earnings of RM25.4-42.1m in FY18-19 (6-66% growth YoY). We expect modest growth in FY18 (+6% CNP) while FY19 will see monumental growth (+66%) propelled by Kampar (refer overleaf).

Trading Buy with a Fair Value of RM0.350. As PTRANS’ new earnings driver will only kick off in FY19, we believe it is fair to value the company based on FY19E earnings. Thus, our TP is based on 14x FY19E PER, a premium to the FBMSC’s 2-year Fwd. PER of 12x on PTRANS; (i) strong earnings growth of 36% (FY18-19E average) vs. the FBMSC 2-year Fwd. average (+8%), (ii) stable earnings owing to its recurring income model, which is more defensive than most FBMSC stocks, (iii) re-rating in valuations on a potential Main Board transfer in FY18. It is good to note that PTRANS is the only listed pure bus terminal play, thus, direct comparables are limited. Meanwhile, share price has retraced from a high of RM0.38 in Sept 2017 (post bonus issue), warranting attractive total returns of 22%.

Source: Kenanga Research - 23 Nov 2017