Key Takeaways From Perak Transit’s (Ptrans) Briefing Are as Follows:

• Steady rise in rentals to offset declines in project facilitation fees;

• 6-month maiden earnings contribution from Bidor Sentral next year; and

• Submission of development order for Tronoh Sentral. We trim FY24 earnings projections lower by 4.2% after factoring in 6- month contribution from Bidor Sentral. However, we maintain Buy on Ptrans with higher SOP valuation of RM1.59/share.

• Submission of development order for Tronoh Sentral.

We trim FY24 earnings projections lower by 4.2% after factoring in 6- month contribution from Bidor Sentral. However, we maintain Buy on Ptrans with higher SOP valuation of RM1.59/share.

Steady rise in rentals to offset declines in project facilitation fees

Recall, the decent 9M23 results performance with 8.2% rise in core profit was driven mainly by higher revenue from the integrated public transportation terminal operations (IPTT), which more than offset cost pressure emanated from interest expense. The rise in 9M23 IPTT revenue, which forms 65% of the group’s total revenue, was due to steady growth in rental collections from new and existing tenants at Terminal Meru Raya (TMR) and Kampar Putra Sentral (KPS). During this period, KK Mart has commenced operations at (TMR) in May-23 while a cinema and a badminton court operator have started operations at (KPS) in June and July-23 respectively. Looking forward, the revenue from KPS will rise further as 2 new tenants in running bowling centre and ballroom business will commence operations in Dec-23.

Management expects the steady rise in rental of shop and kiosk to offset reductions in project facilitation fee (Figure 1). Having said that, the company has a current orderbook of RM25mn, which would be recognised over the next 1 year.

6-month Maiden Earnings Contribution From Bidor Sentral Next Year

The construction progress of Bidor Sentral had advanced further to 81% as at 30 September 2023. Management reassures the Bidor Sentral development will be completed this year and the group would start to apply for a certificate of completion (CCC) in 1Q24. Once the CCC is obtained, tenants can start moving in for renovation and fit-out works. Assuming the tenants will start paying rentals from July onwards, which is 6-month later than our previous assumptions (i.e.: Jan-23), Bidor Sental is expected to generate its maiden 6- month contribution of RM8.0mn (vs previous forecast of RM16.0mn) for FY24 based on our assumptions of 50% occupancy rates (vs management guidance of 70%).

With regards to the investment tax allowance, management explains that the 50% of the qualifying capex can only be deducted against 50% of taxation income from express bus operations at Bidor Sentral, which is marginal compared to other income sources like rentals from A&P space, shop and kiosk. As such, the company has filed an appeal to the Ministry of Finance to review of ITA. If the MoF rejects the appeal, the effective tax rate for FY24 would likely be close to corporate tax of 24%.

Submission of Development Order for Tronoh Sentral

The company has submitted the application for development order to the authority. As such, the development of Tronoh Sentral is expected to begin next year. As far as capex is concerned, we understand the construction cost is estimated at around RM320mn, which will be financed via existing cash hoard of RM134mn and future internally-generated funds. Management reiterates that it would not need an equity fund raising or trim future dividends for funding purpose.

Forecast

We reduce our FY24 earnings projections by 4.2% and leave FY23 and FY25 profits relatively unchanged, with our refreshed assumption of 6-month contribution (vs 12-month previously) from Bidor Sental in FY24.

Valuation

Rolling forward our valuation base year to FY24, we upgrade Perak Transit’s SOP valuation to RM1.59/share (Figure 1). Maintain Buy on Ptrans.

Source: TA Research - 17 Nov 2023