• We favor Perak Transit Berhad (PTRANS) due to its (i) sustainable recurring income from rental of spaces within bus terminals, (ii) sticky demand for advertisement and promotion (A&P) space, and (iii) earnings growth from operation of new bus terminals.

• We project its earnings to grow at 11% CAGR over FY22-26F to RM85mn driven by new income stream from Bidor Sentral beginning 2H24. The Terminal Tronoh which is currently in planning stage would provide further upside to our TP and earnings.

• We anticipate PTRANS to pay dividend between 3.5-4.7sen over FY23 – FY25, translating into 2.9% - 3.9% yield at current share price.

• We initiate coverage on PTRANS with a BUY recommendation and TP of RM1.35, derived based on DCF valuation (WACC: 8.75% and TG: 1%). Sustainable Recurring Income We favour PTRANS owing to its sustainable recurring income generated from operation of bus terminals. While profit contribution from public bus services is small, the company managed to effectively monetise the leasing spaces within bus terminals to generate larger profit. Following the success of Terminal Meru Jaya in Ipoh, the company replicated similar business models at Kampar Putra Sentral as well as upcoming new bus terminals at Bidor and Tronoh. Demand for A&P is Sticky PTRANS’ bread and butter come from rental income of spaces in the bus terminals which made up circa 65% of its bottom-line, as per our estimate. The company primarily generates its rental income through active collaborations with third-party companies that seek effective platforms for connecting advertisers with end-users. Notably, demand for A&P spaces comes from marketing agencies which has been renewing the contracts annually since 2016. We reckon that the loyalty from its clients is stemmed from a sustained passenger footfall into the bus terminals. High barrier to entry into bus terminal operation has further increase PTRANS bargaining power and thus shielded its earnings from potential competitor. Dividend Payout Policy PTRANS maintains a dividend policy, wherein it pays out 35% of its PATAMI. We anticipate a DPS of 3.5sen-4.7sen for FY23F-FY25F, translating to an estimated DY of 3% at current market price. Initiate with a BUY and TP of RM1.35 We are initiating coverage on PTRANS with a BUY recommendation and TP of RM1.35. Our valuation is derived based on a DCF valuation with a WACC of 8.75% and long-term growth of 1.0%. We believe this is fair given its strong earnings prospects, primarily driven by the anticipated new income stream from Bidor Sentral terminal.

Source: BIMB Securities Research - 28 Dec 2023