Perak Transit optimistic on higher terminal occupancy rate amid pandemic

The company is hopeful the Kampar Putra Sentral terminal’s occupancy rate will rise to 70% this year

by HARIZAH KAMEL /Pic Source:

PERAK Transit Bhd is well-positioned to take advantage of pent-up demand for domestic travel once the Covid-19 pandemic is under better control on the back of the rollout of the national vaccination programme.

AmInvestment Bank Bhd (AmInvest) has maintained a ‘Buy’ call on Perak Transit but lowered its fair value by 3% to RM1.21 from RM1.25 to incorporate a slight discount to reflect a two-star environmental, social and governance (ESG) rating on the company.

AmInvest noted that the valuation is based on 15 times of financial year 2022 forecast (FY22F) earnings per share — a 30% discount to its FY22F target price earnings of 22 times for Malaysia Airports Holdings Bhd (MAHB) — with a 3% ESG discount.

“We use MAHB as the valuation benchmark for Perak Transit as we see many similarities between this operator of modern public transport terminals and an airport operator,” the AmInvest research note yesterday stated.

AmInvest feels positive from its recent meeting with Perak Transit on its Kampar Putra Sentral Terminal commissioned in 2020. Perak Transit is hopeful the terminal’s occupancy rate will rise to 70% this year versus 50% currently.

AmInvest forecast 60% occupancy in FY21F and rising to 70%80% in FY22-FY23F.

An additional kicker shall come from the return of the more normalised student crowd in the campus town of Kampar once measures to contain the spread of the pandemic eases.

The terminal’s advertising and promotion (A&P) rates have not been maximised as it is relatively new.

“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 12%-15% of the group’s revenue in FY21-FY23F,” the investment bank noted.

Apart from its bread-and-butter “develop-own-operate” (DOO) business model, Perak Transit also sees tremendous potential in the “terminal management contract” (TMC) business model.

Under the TMC model, Perak Transit provides largely on expertise and assistance in managing third-party bus terminals with some investment in upgrading and renovation works that requires less capital expenditure, resulting in a shorter payback period of four years.

Perak Transit guided for four to five such new contracts in FY21F. The company has so far secured Sentral Kuantan Terminal in Kuantan, Pahang and Shahab Perdana Bus Terminal in Alor Setar, Kedah in FY21.

AmInvest estimates each TMC contract to contribute an additional RM1.5 million net profit to the company.

Perak Transit is now in talks with a potential hypermarket tenant for its up-and-coming Bidor terminal. A deal will see it commencing operation at the terminal as soon as early 2022.

AmInvest likes Perak Transit for its unique business model of operating modern public transport terminals much like airports, and has proven the commercial viability of this business model in its Terminal Meru Raya in Ipoh and the newly opened Kampar Putra Sentral, as well as the vast opportunities to replicate the successful business model elsewhere.

“It has at least two more DOO projects in the pipeline, namely in Bidor and Tronoh, and is 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,” AmInvest added.