It said on Wednesday it changed its valuation methodology from a straight price-to-earnings (PE) to DCF, as it is a better way to capture the group’s mid to long term earnings prospects.
“We continue to like Perak Transit for its (i) attractiveness as a monopoly business; (ii) strong earnings growth from its existing core businesses; and (iii) long-term potential from the upcoming terminal in Kampar. Key risk includes a slowdown in construction of Kampar terminal,” it said.
Affin Hwang Capital Research recently visited Perak Transit’s construction site at Terminal Kampar, which is five minutes away from Universiti Tunku Abdul Rahman (UTAR) and Tenby International school.
It said the construction of Terminal Kampar is on track and it expects the terminal to start operations by 4Q18.
It also said Perak Transit intends to build an integrated lifestyle hub, which will have its own hotel and provide other facilities like badminton courts, gym, cinema, library and bowling alley, within the new 480,000 sf Kampar bus terminal.
“We visited the vicinity of Kampar, which has limited places for recreational purpose, for at least the c. 30,000 student population.
“We think the new integrated lifestyle hub will likely attract UTAR students and in turn attract more F&B and retail businesses,” it said.
Affin Hwang Research said with about 400,000 sf of commercial space available, rental income and adex revenue will be additional income drivers for the bus terminal.
Promotional events and advertisements have contributed significantly to the group’s revenue, but even more pronounced to its profitability.
“We are expecting Perak Transit’s revenue and core net profit in 2019E to grow by 24.2% and 51.0% on-year, when the new terminal is fully operational,” it said.