Key takeaways from Perak Transit’s 2Q24 results briefing:

• Persistent growth of rental income,

• Project updates, and

• RM1.5bn Sukuk Wakalah programme is timely.

No change to our earnings estimates. Maintain Buy on Perak Transit (Ptrans) with unchanged target price of RM1.03/share.

Persistent Growth of Rental Income

The steady growth in rental income has provided the necessary buffer against the rise in operating expenses, making Ptrans’ earnings growth sustainable even under the rising cost environment. In 2Q24, rentals from letting of shops and kiosks (Figure 1) rose steadily to RM13.6mn (+23% QoQ, +31% YoY) due to commencements of convention centre, furniture and renovation shop at Kampar Putra Sentral (KPS) as well as supermarkets at Terminal Meru Raya (TMR) and KPS in 2Q24. Note that TMR and KPS achieved an occupancy rate of 83% and 80%, respectively in July-24.

On the cost front, management attributed the rise in general and administrative expense, which more than doubled to RM4.7mn in 2Q24, to a non-recurring RM2.3mn placement fee for the new Sukuk Wakalah programme. Excluding this would result in a stronger growth in core profit of 12.8% QoQ versus the headline profit growth of 0.1% QoQ.

Project Updates

Bidor Sentral received the certificate of completion and compliance on 9 August 2024. The company and its tenants have started moving in and renovating the building and shops, which are expected to take 2-3 months. Management indicated that it has already secured tenancies to lease 54% of net lettable areas. This, together with rentals from leasing of advertising and promotional (A&P) areas, would make Bidor Sentral profitable in its first year of operations. According to management, the rentals from leasing of A&P space would be approximately RM1.3mn/month.

With regards to tax incentives for Bidor Sentral, i.e., 50% of qualifying capital expenditure (QCE) to deduct against 100% of the income, the appeal to MoF is on-going for the approval in utilising the QCE to knock off rental incomes from commercial retail outlets, A&P areas as well.

For other pipeline projects, Ptrans has awarded the construction contract for the development of Tronoh Sentral recently, so we can expect the construction to begin soon. Management reiterated that the construction cost would remain unchanged at RM320mn despite the hike in diesel price, and the project is targeted for completion by end-26. Elsewhere, the development of Terminal Seri Iskandar is progressing smoothly after securing the necessary

funding for the construction cost of est. RM360mn. construction to begin in 2025.We expect the

RM1.5bn Sukuk Wakalah Program Is Timely

According to management, the profit rate of the Sukuk is pegged to KLIBOR +1.85%. It has a perpetual programme tenure, which will allow Ptrans to issue the Sukuk from time to time. We expect the first drawdown would likely happen over the next 12 months to finance the construction of Terminal Seri Iskandar and redemption of the existing Sukuk.

Overall, we are positive on this Sukuk programme which is timely to meet Ptrans’ short-term debt obligation of RM64.5mn, working capital and capex requirement of estimated RM600mn for the next 2 years.

Forecast

No change to our FY24 and FY26 earnings projections.

Valuation

We maintain Perak Transit’s SOP valuation at RM1.03/share (Figure 2). We continue to like Ptrans for its stable earnings trend. At RM1.03, the implied valuation PE works out to ~15.5x which we think is reasonable as its stable earnings are supported by 3 decent completed terminals and 2 pipeline projects. Maintain Buy

Source: TA Research - 21 Aug 2024