Perak Transit Berhad (“PTRANS”) was incorporated in Malaysia on 5th September 2008 and was listed in Bursa Malaysia on 6th October 2016. The company involves in the management of public transport terminal – Terminal Meru Raya & Kampar Putra Sentral. The company also engaged in bus operation and petrol stations operation. Below is a summary of Perak Transit business model:
On 31 December 2020, the company announced share consolidation exercise. But 6 months after, the company announced bonus issue of free warrants. This is after its recent 1Q21 result which saw an earnings growth of 55.8% against 1Q20.
In my opinion, Perak Transit is doing pretty well despite the current covid-19 situation in Malaysia. One might wonder how it can achieve such result. Well, here’s an updated 6 key insights you need to know about Perak Transit before investing:
#1: MONOPOLY POSITION
Businesses revolving around public transportation terminal usually supported by government agencies. Why do I say this? In order to build such terminal, you need to apply license with the City Council and SPAD (Land Public Transport Commission Malaysia).
Furthermore, the licensing process is not an easy one because the terminal would need to comply with four KPIs. These KPIs are Terminal Management, Passenger Information, Bus/Taxi Schedule and Cleanliness.
Such high barriers of entry coupled with highly capital intensive to build one terminal (approx. RM128 mil), its no wonder PTRANS is in a monopoly position. So far, it is the only company that has a license to operate such transport terminal in Perak.
Terminal Meru Raya is the only gazetted terminal for express bus in Ipoh. This means all express buses to Ipoh are required to stop at this terminal. This brings me to my second point.
#2: STRONG RECURRING INCOME
Transport terminal is like KL Sentral. It is a huge building with empty spaces that can be rented out. Because of this, PTRANS is able to generate strong recurring income from rental of stores, kiosk and advertising spaces in its terminal.
As you can see in above, revenue from its public transport terminal (“PTT”) has been rising steadily. Despite the covid-19 situation in Malaysia, PTRANS was able to increase its revenue by 18.5% in 2020.
#3: GROWTH FROM TERMINAL KAMPAR PUTRA SENTRAL
The increase in revenue from PTRANS’s PTT segment was partly due to its 2nd terminal operation. In August 2020, the company received full certificate of completion & compliance for this terminal.
Moving forward, I would expect more growth coming from this PTT segment. This is because the new terminal has bigger gross lettable area (e.g. 409,000 sq ft) compared with Terminal Meru Raya. Furthermore, it will have facilities such as grocery outlets, cinema and sports centre.
According to its CFO, there are no nearby supermarket, entertainment centre and sports centre in Kampar. But there is university. As such, this new terminal will target the students in the university town.
#4: INCREASING DIVIDEND PAYMENT
With such strong recurring income, PTRANS was able to declare increasing dividend per share since 2016. For the year 2020, the dividend payment has increased by 35%. At the time of writing, PTRANS is trading at RM0.69 per share. This gives a dividend yield of 3.33% based on its 2020 dividend per share.
#5: CORPORATE GOVERNANCE CONCERN
While PTRANS seems like a good company for investment, there are some concern that I have. The first being the company’s way of disclosing information. There is little to no information such as occupancy rate & the average lease expiry for its PTT segment. Since a bulk of the company’s revenue come from this segment, I would think that it is crucial to have such information disclosed.
And then there is this, “project facilitation fees”. Below is the description of this service in the company’s IPO prospectus:
If I interpret correctly, PTRANS will charge a fee to anyone who wants to seek consultation for development & operation of terminals. This segment seems like a one-off kind of revenue but it has been increasing since 2014.
The growth in this segment is at a CAGR of 47.8% over the past 6 years. As of 2020, this segment has contributed about 33% of PTRANS total revenue. I mean are there really so many proposals for terminal development every year?
Again, there are no further information that is disclosed by the management. Information such as project listing on completed services would have been helpful. This is definitely an area of concern for me.
#6: DIVERSIFICATION INTO MINING OPERATION
Another area of concern to me is the company’s decision to go into mining management operation in year 2020. While the loss in this segment is negligible – a mere RM 85.7K, I wonder why this was undertaken. This segment contradicts PTRANS’s mission statement:
I mean how does mining management operation helps the company to achieve its mission. This is something that has been bothering me. It just indicates that the management’s capital allocation behaviour is questionable.
Nevertheless, Perak Transit business model is perfect for dividend investors. The recurring income helps to sustain its dividend payment. These are predictable income. Similar like REITs, rental income tends to be more stable because it is according to the signed tenancy agreements.
But I would not invest in it because of the lack of info on project facilitation fees and the recent move into mining operation. It just indicates that the management has poor capital allocation behaviour, in my opinion.
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