Corporate Exercise

Perak Transit has completed the proposed bonus issue on 8 March 2024, following the issue and listing of 371mn bonus shares and 62.6mn additional warrants on Bursa Malaysia. The strike price of the warrant has been adjusted to 50sen from 75sen previously with the same maturity on 2 Aug 2026. This exercise will be marked as the sixth major corporate exercise carried out by the company since IPO, which resulted in changes in share outstanding. Prior to this, Ptrans has successfully completed i) bonus issue of share (1:10) with free warrant (1:2) in Sep-17, ii) 10% private placement in Jul-18, iii) share consolidation (3:1) in Jan-21, iv) proposed bonus warrant in Aug-21 and v) 10% private placement in May-22.

Future Fund Raising

Besides the new share and warrant issuance in the past, Ptrans has also established an Islamic Medium-Term Notes of up to RM500mn nominal value in Sep-19, which has been fully drawn down for Terminal Bidor Sentral (Bidor Sentral) and upcoming Terminal Tronoh Sentral (Tronoh Sentral) developments. Note that the construction of Bidor Sentral has been completed, pending the award of certificate of completion and compliance. As for Tronoh Sentral, the construction would likely begin this year after the submission of development order.

Tronoh Sentral is expected to cost around RM320mn capital expenditure over a construction period of 2.5-3.0 years. Based on the group’s total cash piles of RM92.5mn as at Dec-23, we expect Ptrans would have another round of fund raising during the construction period, along with the proceeds from future warrant conversions, in order to complete the development of Tronoh Sentral.

Optimal Net Gearing < 1.0x

Based on Ptrans’ outstanding net debts of RM445mn or net gearing ratio of 0.7x as at Dec-23, the company still has a marginal debt headroom of estimated RM110mn before its proforma FY23 net gearing ratio hitting its historic high of 0.85x (in FY15). As such, we believe the capex needed for the development of Tronoh Sentral would partially come form equity as well without overstretching its financial leverage. Assuming Ptrans were to finance the Tronoh Sentral’s RM320mn capex using 30% equity and 70% debt, the proforma FY23 net debt and net gearing ratio would be RM577mn and 0.78x respectively.

Figure 1 below depicts changes in interest coverage ratio and net gearing ratio during the construction of Teminal Kampar Putra (TKP) and Bidor Sentral. In FY20, the company had seen a significant shareholders’ interest in the conversion of warrants before expiring. Ptrans reported a warrant conversion rate of 96.7% for warrant A, raising as much as RM120mn in FY20 and reduced the gearing ratio to 0.4x. The same thing may happen again on Ptrans’s on-the-run warrants B, which would provide additional capital of RM94mn when expire in Aug-26. In terms of interest coverage ratio, it has been relatively strong at 6x or above after the commencement of TKP as the new income stream more than offset the rise in finance cost and other associated expenses. All in all, Ptrans has been proactive in managing its capital structure in a disciplined manner without jeopardising its future profit and dividend sustainability.

Forecast

No change to our FY24 and FY25 earnings projections. However, we reduce FY24-25 EPS and DPS to 6.3-6.8sen and 2.2-2.7sen respectively to reflect the change in the enlarged share base post bonus share issuance.

Valuation

We adjust Perak Transit’s SOP valuation to RM1.03/share (RM1.55 previously) (Figure 2) post bonus issue. We continue to like Ptrans for its stable earnings trend. At RM1.03, the implied valuation PE works out to ~16x which we think is reasonable as the stable earnings are generated by 3 decent assets. Maintain Buy

Source: TA Research - 15 Mar 2024