Perak Transit Berhad (PTB), an integrated bus terminal operator with a 20-year history, is slated for listing on the ACE Market early next month. The group is raising RM36.8m from the issuance of 245m new shares. Our earnings estimates are largely underpinned by i) A&P revenue growth, ii) an addition of 25 new express buses, and iii) additional 16 new stage bus routes under the SBST programme. Our fair value for Perak Transit Berhad is RM0.21, based on a 10x PE multiple to its estimated FY17F EPS of 2.1sen.

Background. Perak Transit Berhad is primarily involved in operating an integrated public transportation terminal, Terminal AmanJaya in Ipoh. The bulk of revenue (59%) from its terminal operations is contributed by rental of advertising and promotional (A&P) spaces. Apart from this, the group is also providing stage bus and express bus services around Ipoh. To-date, its fleet size has been expanded to 146 buses, of which 119 are public stage buses with the remainder used for express bus services. The group currently operates 27 stage routes and 4 express bus routes.

Future plans. PTB plans to replicate the success of Terminal AmanJaya in other cities, first off by constructing a terminal in Kampar at an estimated RM128.3m. The construction costs will be funded by IPO proceeds, drawdown of borrowings and internally-generated funds. Construction of Terminal Kampar is estimated to commence in 2H16 and is slated for completion by 2H18. The group also intends to acquire an additional 25 express buses to fully utilise its eight express bus route permits. New express buses are expected to be delivered by 4Q16. Post-completion of Terminal Kampar, PTB plans to expand its existing Terminal AmanJaya by increasing gross building area by c.80%.

Stage Bus Service Transformation (SBST) was introduced by the Land Public Transport Commission (SPAD) in 2015. This programme is mainly focused on improving operator viability and expanding bus route coverage by migrating the current fare-box collection model to gross-cost service contract model. Incidentally, PTB was awarded the contract by SPAD to be Ipoh’s bus network operator under this programme, with an additional 16 new stage bus routes. As of September 2016, this programme covers 19 routes across 314km in Ipoh and has been fully operationalized. PTB is likely to secure the 3 remaining stage bus routes not yet awarded. We are encouraged by this initiative, as the group would receive stable income from stage bus operations without the hassles of bus operation costs which are now borne by the Government.

Key risks for Perak Transit include i) high dependency on major advertising and promotion partners, ii) non-renewal of bus route permits, iii) loss of income from project facilitation fee.

Source: PublicInvest Research - 23 Sep 2016