Not rated TA Research Tel:

Transcription

1 MENARA TA ONE, 22 JALAN P. RAMLEE, KUALA LUMPUR, MALAYSIA TEL: / FAX: Perak Transit Berhad The Only Gazetted Bus Terminal in Ipoh THIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY* IPO Wednesday, 21 September 2016 FBM KLCI: 1, Sector: Transportation Fair Value: RM0.20 Ace Market Listing Not rated TA Research Tel: kmtan@ta.com.my IPO Structure Perak Transit s IPO entails public issue of 58.0mn shares and private placement of shares at IPO price of RM0.15/share (see Exhibit 1). Figure 1: IPO Structure Issue price at RM0.15/share Public Issue - 245mn shares (21.4% of enlanged share cap) Malaysian general public 58.0 million new shares (5.0%) Private placement to selected investors million new shares (16.4%) Note that there is a group of pre-ipo investors, who have subscribed for Perak Transit shares at lower price (see Figure 2). However, these investors, together with promoters, are prohibited to sell their shares for six months after listing. In other words, only 245mn IPO shares are tradeable for the first 6 months after listing Figure 2: 6-month Moratorium & Voluntary Lock Up will be imposed on Promoters and Pre-IPO investors Promoters mn shares % of share held Ave. cost per share CBS Link % Dato' Sri Cheong Kong Fitt % Datin Sri Lim Sow Keng % Dato' Cheong Peak Sooi % Gemas Perunding % Pre-IPO investors mn shares % of share held Ave. cost per share Muamalat Venture % MTD Capital % Senandung Asas % Maksima Amanjaya Development % Total % Share Information Listing Ace Market Enlarged Share Capital (mn) Market RM0.15 (RM mn) Par Value (RM) 0.10 Issue price (RM) 0.15 Oversubscription rate N/A Estimated free float (%) N/A Tentative listing date 6-Oct-16 Tentative Listing Dates Event Opening of the IPO Closing of the IPO Balloting of Applications Allotment of Shares Listing Tentative Date 15-Sep Sep Sep-16 4-Oct-16 6-Oct-16 Ratio & Analysis Proforma NTA per share (sen) 0.16 Price to NTA (x) 0.94 Proforma 2016 ROE (%) 10.9 Proforma Gearing (x) 0.49 Utilisation of Proceeds RM(mn) % Business expansion Repayment of hire purch Working expenses Estimated listing expense TOTAL Utilisation of proceeds Of the total estimated gross IPO proceeds of RM36.75mn, the bulk of it (54.4%) will be used to construct Terminal Kampar. Besides, approximately RM3.1mn will be allocated for feasibility studies on two proposed integrated transportation terminals namely, Terminal Bas Temerloh Sentral, Pahang, and Terminal Bas Integrasi Kemaman, Terengganu. (see Figure 3). Figure 3: Utilisation of Proceeds Details of utilisation RM'mn % Estimated timeframe for utilisation upon listing Construction of Terminal Kampar Within 24 months Repayment of hire purchase facilities Within 12 months Working capital Within 24 months Estimated listing expenses Within6 months Total Page 1 of 5

2 Shareholder & management Post IPO, Dato Sri Cheong Kong Fitt and family will own 38.8% stake in Perak Transit. Other substantial shareholders will be those pre-ipo investors namely, Muamalat Venture and MTD Capital. Perak Transit is run by a group of professionals led by Dato Sri Cheong. Currently, Dato Sri Cheong is the managing director of Perak Transit, who is responsible for day-to-day operations. He has approximately 20 years of experience in the public bus terminal operations. Background Perak Transit is principally involved in the operations of Terminal AmanJaya integrated public transportation terminal and the provision of public bus service. It is also involved in petrol sales business with the operations of 4 petrol stations, one each in Lahat (Shell), Tanjung Rambutan (Shell), Terminal AmanJaya (BHP) and Lubok (Petron). Terminal AmanJaya is an integrated public transportation terminal and the only gazette express bus terminal in Ipoh. It houses 17 express bus departure bays, 5 express arrival bays and 40 holding bays within this 3-storey building complex. Total building area is 208,802sf of which 49,291sf can be leased to potential tenants for rental income. For future expansion, Perak Transit possesses a plot of land beside Terminal AmanJaya, measuring 135,721sf, for that purpose. In 2014, Perak Transit achieved a stage bus ridership market share of 97.8% in Ipoh. The number of ticket purchasing passenger increased to 822,775 in 2015 from 760,740 a year ago (573,022 for 10M-13). Currently, the company has a total bus fleet of 146 busses, comprising 119 stage buses and 27 express buses with average age of below 5 years. As far as earnings are concerned, Perak Transit has various income sources which can be categorised under: 1) income derived from terminal operation; 2) provision of public bus services, and 3) petrol station operations. Income derived from terminal operation includes rental of advertising and promotional space, rental of shops and kiosks, project facilitation fees, bus and taxi entrance fee, car park and lavatory fees. In FY15, the three divisions provided significant revenue to the group in the range of 29-40%. However, at the gross profit level, terminal operations provided the bulk of the earnings given the higher margin from rental compared to public bus service and petrol stations. Figure 4: FY15 revenue breakdown Petrol stations, 31% Public bus services, 29% Terminal operations, 40% Figure 5: FY15 gross profit breakdown Petrol stations, 3% Public bus services, 19% Terminal operations, 78% Source: Perak Transit & TA Securities Page 2 of 5

3 Investment case 1) Monopoly in Ipoh, Perak Terminal AmanJaya s status as the only gazetted express bus terminal in Ipoh was formally recognized by Land Public Transport Commission (SPAD). In 2015, the company received a letter of intent from SPAD on the appointment of Perak Transit as bus network operator for Ipoh under the Stage Bus Service Transformation (SBST). Being the only gazetted express bus terminal and operator of stage buses, Perak Transit controlled 97.8% of stage bus passenger ridership market share in Commenced operation in Sep-12, the terminal achieved 573,022 passenger traffic for 10MFY13 when it started collecting traffic data. The passenger traffic grew by leaps and bounds to 822,775 in 2015, resulting in increased revenue from bus operation from RM15.2mn in FY13 to RM21.6mn in Importantly, the increased passenger traffic has led to higher income from terminal operations. Rental of A&P space and shops and kiosks, which command higher margin, has increased as well from RM13.9mn in 2013 to RM19.3mn. Note that the cost for providing A&P spaces is limited to the depreciation of the outdoor three-faced advertising billboard. For those advertisements placed on the buiding walls and pillars, the cost is essentially zero. According to management, almost all the walls and pillars within the terminal have been utilized for advertising purpose. Perak Transit has engaged Rezeki Megajaya as a sole operator to the rental of A&P spaces in AmanJaya Terminal. Rezeki Megajaya shall source for advertisers and end-users for the promotional spaces. Also, Perak Transit has engaged Century Edge Group to undertake the rental of promotional spaces at the terminal. We like this approach of granting exclusive rights to operators for rental of A&P space and shops and kiosks as it would provide stable income and eliminate collection risks. 2) Future expansion Leveraging on its skill in managing bus terminal, Perak Transit intends to replicate the success in Terminal AmanJaya to Terminal Kampar to grow future income and reduce earnings risks concentrated on Terminal AmanJaya. In Jan-16, the company has signed a sale and purchase agreement for the purchase of 2 parcels of land measuring approximately 3.72 acres in Mukim Kampar, Perak. Recently, it has secured the development approval for the construction of bus terminal. The proposed Terminal Kampar will have a building height from lower ground to 8 th floor, comprising bus loading/unloading bays, hotel rooms and hotel facilities, cinema and entertainment outlets, car parks, sports and fitness club and dental specialist centre. Construction and other building planning costs are estimated at RM128.3mn, of which Perak Transit intends to part-finance with RM20mn IPO proceeds and RM100mn bank borrowings. Construction is expected to kick-start in 2H16 and expected to complete within 18 months. In other words, Terminal Kampar is expected to commence operations in 2H18. Page 3 of 5

4 We are positive on the financing structure, which Perak Transit will utilise less than 20% equity financing to part finance the construction. Note that the ratio could be much lower if we include the land cost as well. The preference over debt financing can be due to the future income sources, which are expected to be relatively stable. Taking Terminal AmanJaya as a clue, we understand from management that up to 70% of revenue generated from Terminal AmanJaya is recurring, which could perfectly matches the recurring interest payments. 3) Incentives Barrier to entry is significantly high due to various licensing requirements. Also, given Perak Transit s first-mover advantage, competitors may find it hard to compete. As a public bus operator in Ipoh, Perak Transit is incentived by government support funds to unprofitable routes to ensure service continuity. Moving forward, the company will apply for other route permits to expand the network further to other outskirt areas. Other than the government support fund, the company also receive government grant for the construction of Terminal AmanJaya. Besides that, the company has been granted Approved Service Project Status, which allows the company to claim up to 60% of the amount of capital expenditure invested for a period of 5 years between FY12-FY17. As at Apr-16, Perak Transit has up to RM88.4mn unutilised tax credit, which can be used to offset against future taxable profit. Risks One of the major risks to Perak Transit relates to the company s single key asset, which gives rise to earnings concentration risk. Currently, close to 78% of earnings were generated from Terminal AmanJaya. As such, earnings will be severely affected by any unforeseen events that will lead to closure of terminal. Forecast Perak Transit recorded core profit growth of 214% for FY15. This was due to the increase in PBT margin from 7.7% in FY14 to 26% FY15. Note that the sharp increase in margin despite flat revenue growth can be attributed to favourable product mix with increased contribution from project facilitation fees. Also, the decline in the petrol pump price and cost has lifted the margin too. As far as 4MFY16 earnings are concerned, we observe that the PBT margin has sustained at 26% levels. Looking forward, we expect Perak Transit s FY16/17/18 profit to grow 4%/13%/17% respectively, on the back of higher contribution from stage bus services, reduction in interest expense and maiden contribution from Terminal Kampar in 2H18. Gearing wise, we expect net gearing to decline to 0.5x (from 0.6x) in FY16 post IPO, which is within the comfortable zone for an asset-heavy company. For dividend, Perak Transit intends to recommend dividend distribution of up to 25% of earnings for FY16 and FY17. This would work out to sen per share or dividend yield of % based on IPO price of 15sen. Page 4 of 5

5 Valuation There are no direct comparisons in the market as none of the listed players in Malaysia involved in bus terminal operation. We value Perak Transit at 20sen/share, based on 10x CY17 EPS. The discount to our sector PE of 12x for land transportation is justifiable after taking into account 1) market cap; 2) resilient earnings with dominant market share in Ipoh. Earnings Summary FYE Dec (RMmn) F 2017F 2018F Revenue Gross profit EBIT EBIT margin (%) Net interest (6.5) (7.5) (7.2) (6.5) (7.1) PBT Core profit core EPS * (sen) PER (x) Gross dividend * (sen) Dividend yield (%) *Based on enlarged share capital of mn shares Disclaimer The information in this report has been obtained from sources believed to be reliable. Its accuracy or completeness is not guaranteed and opinions are subject to change without notice. This report is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect loss arising from the use of this document. We, our associates, directors, employees may have an interest in the securities and/or companies mentioned herein. For TA SECURITIES HOLDINGS BERHAD(14948-M) (A Participating Organisation of BursaMalaysia Securities Berhad) Kaladher Govindan Head of Research Page 5 of 5