Investment Highlights

• We maintain our BUY call and forecasts, but reduce our fair value (FV) by 13% to RM1.05 (from RM 1.21) to reflect the dilution from the recently completed issue of 1 free warrant for every 4 shares.

• Our FV is now based on 15x its fully-dlluted FY22F EPS (from 15x FY22F EPS previously), at a 30% discount to our FY22F target PE of 22x for Malaysia Airports, and adjusted for a 3% discount to reflect our 2-star ESG rating (Exhibit 3). We use Malaysia Airport as the valuation benchmark as we see many similarities between this operator of modern public transport terminals and an airport operator.

• We expect Perak Transit to announce flattish 2QFY21 results sequentially on 19 Aug 2021. This will be commendable given the challenging operating condition on the heels of the reintroduction of the MCO, both nationwide and in the Perak state since May 2021.

• Cumulatively, 1HFY21 net profit of between 25.0mil and RM29.0mil based on our expectations will account for 51– 59% of our full-year forecast of RM49.3mil and 49–57% of the full-year consensus estimates of RM50.9mil. This will translate to an earnings increase of 50–74% YoY.

• This strong earnings growth will be underpinned by a higher contribution from the integrated public transport terminal (IPTT) operations, thanks to the new advertising income stream from Kampar Putra Terminal Sentral (opened in September 2020). The locked-in incomes from advertising incomes and project facilitation fees (both combined typically contribute to more than 95% of revenue from the terminals) will continue to ensure the company’s resilient performances in spite of the MCO, as well as its costs containment efforts and lower finance cost.

• Meanwhile, we expect muted results from its petrol station and bus transportation operations amidst the MCO. However, we are unperturbed as they are not Perak Transit’s key earnings contributors and growth drivers.

• We continue to like Perak Transit for:
  • Its unique business model, i.e. the operation of modern public transport terminals that emulate airports with spacious and brightly lit shopping, dining and waiting areas, and clean public facilities particularly the washrooms. These entice visitors to spend more money and time in the terminal prior to their departure or upon their arrival, or while sending off or picking up their loved ones. This captive traffic is monetized in the form of rental incomes from commercial units and advertising space within the terminal;
     
  • It having proven the commercial viability of this business model in its Terminal Meru Raya in Ipoh (an interstate transportation hub) and the newly opened Kampar Putra Sentral. Kampar Putra Sentral is also buoyed by a high and fast-growing student population in the campus town of Kampar. This student population has high propensity to travel during school breaks and festivities, as well as during weekends for leisure; and
     
  • The vast opportunities to replicate this successful business model. Already, it has at least three more projects in the pipeline, namely, in Bidor, Tronoh and Alor Setar.
     
• At 7–8x forward earnings, we believe Perak Transit offers investors a good opportunity to own a defensive public infrastructure business that is replicable for growth at bargain valuations.

Source: AmInvest Research - 17 Aug 2021