Perak Transit Bhd’s (PTRANS) maiden venture into third party terminal management services (TMS) to operate Terminal Sentral Kuantan (TSK) marks a strategic move towards higher growth and recurring earnings with minimal capital expenditure. BUY with a target price of RM1.12 based on 14x FY22 PER. PTRANS is the only listed bus terminal operator in Bursa and our valuation is higher than Bursa Malaysia Small Cap Index 10x FY22 PER, we believe the valuation is justified given its resilient business model and projected steady growth.

To recap, PTRANS is a leading integrated public transportations terminal (IPTT) operator with business complemented by public bus services and operation of petrol stations in Perak. Its flagship Terminal Meru Raya (TMR) is a successful model premised on good margins supported by recurring income since its operations in 2012. Over the years, IPTT segment turned out to be the major growth driver (6-year revenue CAGR of 26.6%) largely derived from rental income of advertising and promotional spaces which they receive consistent income-stream from third party on a monthly basis, retail rental, project facilitation and terminal management. In FY20, revenue contribution from IPTT, public bus services and petrol stations operation were 44.9%, 27.0% and 28.2% respectively.

While the stable income generating TMR is now transformed into a major land transport hub in Ipoh with Grade “A” rating (1 of the only 2 bus terminals in the country), next growth catalyst will centre on Kampar Putra Sentral (KPS), a modern IPTT within the university township which has made its first earnings contribution in 3QFY19. Given PTRANS excellent track record in IPTT business, we believe PTRANS can replicate the business model on KPS, alongside with the upcoming Terminal Tronoh and Bidor Sentral.

Beyond Perak, PTRANS has ventured into TMS with Energetic Point to operate TSK which requires lower capital expenditure yet periodical revenue of RM100,000 monthly subjected to minimum annual increment of 3% for 9 years period. We believe PTRANS’s competitive edge in operating IPTT provides ample opportunities to secure more TMS contract from over 100 IPTT and bus terminals in Malaysia, which is another growth avenue.

The group has been paying out dividend above 35% payout ratio over the past 2 years, translating to an expected dividend yield of ~3%. All in all, PTRANS has over the years displayed remarkable track record in terminal operation while expanding its expertise towards TMS is deemed to provide a new source of income and thus PTRANS remains to be our selective recovery play in public transportation sector

Source: Rakuten Research - 21 Jan 2021