AmInvestment initiates 'buy' on Perak Transit on business model potential

KUALA LUMPUR: AmInvestment Bank Research has initiated coverage on Perak Transit Bhd with a "buy" recommendation and target price of RM1.25 on optimism over the group's unique and commercially viable business model.

"At 9–11x 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," it said.

The research house said it sees many similarities between the operator of modern public transport terminals and an airport operator.

"Its unique business model, i.e. the operation of modern public transport terminals, also known as integrated public transport terminals (IPTTs) that emulate airports with spacious and brightly lit shopping, dining and waiting areas, and clean public

facilities, particularly the washrooms.

"This entices visitors and commuters 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," it said.

The captive traffic is monetised in the form of rental incomes from commercial units and advertising space within the terminal, it added.

According to AmInvestment, Perak Transit has proven the commercial viability of its business model in Terminal Meru Raya in Ipoh and the newly opened Terminal Kampar Putra Sentral in Kampar.

The latter terminal is supported by a high and fast-growing student population in the campus town, whereby the students have a high propensity for travel during school breaks and festivities, as well as weekends for leisure.

Meanwhile, AmInvestment sees vast opportunity for Perak Tansit to replicate its business model, with three more projects already in the pipeline in Bidor, Tronoh and Kuantan.

The research house projects Perak Transit's earnings to grow 22% and 10% in FY21-22 underpinned by higher footfall leading to improved rental and advertising.

This assumes the normalisation of bus passenger travel in the event the Covid-19 pandemic gradually comes under control by 2H2021 and Kampar Putra Sentral's first full year contribution from FY21 as well as organic growth in bus passenger travel post-pandemic.
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