AmInvest Research retains buy on Perak Transit, FV RM1.21

KUALA LUMPUR: AmInvestment Research is maintaining its forecasts for Perak Transit but tweaked its fair value (FV) lower by 3% to RM1.21 from RM1.25 to include a slight discount to reflect a two-star ESG rating as appraised by the research house.

It said on Tuesday, the basis of its FV was now 15 times FY22F EPS (at a 30% discount to its FY22F target PE of 22 times for Malaysia Airports) with a 3% ESG discount.

“We use Malaysia Airports as the valuation benchmark for Perak Transit as we see many similarities between this operator of modern public transport terminals and an airport operator. Maintain buy,” it said.

AmInvest Research was positive on the outlook for Perak Transit after a recent meeting.

The key highlights from its meeting:

Firstly, on the newly commissioned (in 2020) Kampar Putra Sentral Terminal, Perak Transit hopes its occupancy rate will rise to 70% this year versus 50% currently (Amivest Research’s forecasts assume 60% in FY21F, rising to 70%-80% in FY22–23F).

It expects more upside with the return of the more normalised student crowd in the campus town of Kampar once the pandemic comes under better control on the back of the rollout of the national vaccination programme.

As the terminal is still relatively new amidst the pandemic, its advertising and promotion (A&P) rates naturally have not been maximised.

It said they were on average only at two-thirds of those of the more established Meru Raya Terminal.

“We see an upside potential over time and we project its A&P incomes to grow by 6% annually.

“Based on our forecasts, Kampar Putra Sentral Terminal will contribute between 12% and 15% of the group’s revenue in FY21–23F,” it said.

Secondly, apart from its bread-and-butter “develop-own-operate” (DOO) business model (of which it has two projects in the pipeline, i.e. the Bidor and Tronoh terminals, at present), Perak Transit also sees tremendous potential in the “terminal management contract” (TMC) business model.

Under the TMC model, Perak Transit provides largely expertise and assistance in managing third-party bus terminals (with some investment in upgrading and renovation). This requires less capital expenditure, resulting in a shorter payback period of four years (vs. eight years under the DOO model).

AmInvest Research said Perak Transit guided for four to five such contracts in FY21F. Thus far in FY21F, it has secured two, i.e. Sentral Kuantan Terminal (Kuantan) and Shahab Perdana Bus Terminal (Alor Setar).

“We estimate each TMC contract could contribute an additional RM1.5mil net profit to the company,” it said.

Despite the pandemic, the research house said A&P contracts at Meru Raya Terminal and Kampar Putra Sentral Terminal have been renewed with no discount being given. Typically, the A&P rates are revised annually.

Meanwhile, for the up-and-coming Bidor terminal (slated for full opening in 2H 2023), the company is in talks with a potential hypermarket tenant. A deal will see it commencing operation at the terminal as soon as early 2022.

AmIvest Research continues to like Perak Transit for:

1. 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.

2. 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; and

3. The vast opportunities to replicate this successful business model. Already, it has at least two more BOO projects in the pipeline, namely in Bidor and Tronoh, as well as expecting at least two to three more TMC projects this year.

“At eight to 10 times 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.

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