Case Study of Perak Transit Berhad (0186)

Overview

Perak Transit Berhad is an investment holding company, which principally involved in the operations of an integrated terminal complex and provides public transportation services in Malaysia. It has an integrated public transportation terminal (IPTT) in Ipoh, Perak which is also known as Terminal Meru Raya (New Name), before that it is known as Terminal Aman Jaya.

On 5 September 2008, Perak Transit Berhad was incorporated as a private limited company in Malaysia. While on 6 October 2016, it has been listed in ACE Market and successfully transform into Main Market listed in Bursa Malaysia on 19 December 2018.

Business Model

Perak Transit Berhad has a robust recurring income-driven from Terminal Meru Raya (Aman Jaya) in Ipoh, Perak. Besides provide management services for bus operations, they also diversify their business into different sectors such as rental space for advertisement, seminar room, office, shop, booth, kiosks, bus services and petrol station operation. Their primary revenue of this company comes from Bus Services and Petrol Station Operation. Under the government’s development of blueprint, the operation of bus terminal by Perak Transit became a monopolised business model in Perak.  All the buses, as well as taxi, are charged entrance fees and other fees (included with tax) for the usage of basement car park and lavatory. Besides, all buses will refill the petrol at the designated petrol station owned by Perak Transit Berhad before they set off to a specific location.

Based on the past five financial years as above, the profit for the year is increasing years on years start from FYE2014 (+86.92%), FYE2015 (+42.32%), FYE2016 (+13.22%), FYE2017 (+33.56%) until FYE2018 (+24.18%). According to Warren Buffet, he said that he only would consider for the company which have listed for about ten years or above. For PTRANS, it listed on FYE2016 until FYE2018 which is three years. It does not meet the requirement for Warren Buffet. However, the revenue, EBITDA, total assets of the company also keep on increasing years by years.

The most important thing that an investor will concern is since the borrowings for the company are increasing due to the business expansion, is the company able to pay back his liabilities? Based on my computation of liquidity ratio, we indicate that PTRANS have a slightly decreases in the current ratio in FY2018, which is 1.1910 times compared to FY2017, which is 1.5071 times. However, PTRANS still do not face any liquidity problem and it even capable of paying off the obligations when it comes to due in FY2018 by using the current assets such as inventories, trade and other receivables, other assets, cash and bank balances.

 

Cash Flow Statement

Based on the cash flow statement of PTRANS, the Net Cash from Operating activities in FY2018, which is RM27,211,160 is lower than FY2017, which is RM40,719,562. Is this a bad sign for the company? If we look more closely, you will realise PTRANS paid out a massive amount of the trade and other receivables and buy more other assets in FY2018 which cost him RM16,692,674 and RM4,799,623. While in FY2017 trade and other receivables only cost him RM506,605 and RM4,799,623 in other assets which are lower than FY2018. Therefore, it results in the net cash from operating activities decreased in FY2018 when compared to FY2017.

Based on the cash flow from investing activities, the Net cash from investing activities is increasing in FY2018, which is RM80,875,258 from RM74,538,392 in FY2017. It was due to purchase more new property, plant and equipment in FY2018, which cost him RM81,353,339, which is higher than FY2017 with the amount of RM71,245,621. Therefore, it results in the net cash from investing activities was higher in FY2018.

While based on the cash flow from financing activities, the net cash flow from financing activities in FY2018, which is RM50,294,965 is higher compared to FY2017, which is RM25,028,092. An increase in this number indicates that the cash has come into the company will help to boost the asset levels.

Future Prospect & Challenges

Perak Transit (PTRANS) has built a new bus terminal in Kampar. I believe that the Kampar Terminal will be served well as a transportation hub in the university town with UTAR, TARC and Westlake International School amidst a growing population. However, based on The Edge newspaper, the full certification of completion and compliance (CCC) has yet to be received as inspection are still ongoing, while the management is also addressing some issues of the routing of electricity to supply in Terminal Kampar, it shall be resolved in the 4th Quarter of FY2019. They expect that the terminal can be fully operation start in 1st Quarter of FY2020, which is after 2 to 3 months of renovations work for new tenants.

According to the Managing Director Dato’ Sri Cheong Kong Fitt, has stated that the bus terminal is the core business for the company which intends to expand more for future earnings growth. PTRANS had received a Letter of Intent from SPAD on the appointment as network operator for the SBST Programme for a period of 8 years. Following by the Terminal Kampar’s operational commencement, the management will subsequently look to take the new project next year to replicate experience and expertise from operating terminals Aman Jaya and Kampar to develop the new bus terminals in Bidor and Tronoh which would individually cost between RM150 million and RM200 million with two years construction period. Besides, Bidor and Tronoh, Perak Transit also has been acquiring land in Kinta but also exploring opportunities for construction and management of Terminal in Termerloh, Pahang, Kemaman, and Terengganu.

My Insight

Based on my calculation, Perak Transit Berhad has a fair value of RM0.947. The current market value of Perak Transit Berhad is RM0.19 (Based on 15 August 2019). However, for the Discounted Earnings Model, it shows that Perak Transit currently is undervalued. PTRANS is committed to maintaining its dividend payout around 35%, which is above the official policy of 25% or more. As a side note, the management has guided that the dividend payout would now occur twice a year (from three times a year previously). (Sources: The Edge). PTRANS also has a beta (500days) of 0.863 indicates that the company is less volatile than the market. Based on my computation of Compound Annual Growth Rate (CAGR), PTRANS have an expected market return of 6.18%.

In my humble opinion, although the company share capital is vast and the debt is high, we can see that the prospects of this company are very bright. I believe that the company can sustain the business with stable income with stable recurring income.

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Written by Stella Goh | 19 August 2019.

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