The transportation and infrastructure sector can be capital intensive and boring. But it remains a relatively evergreen segment that is safe from AI as of now.
Recently, unwarranted selloffs saw a Malaysian-listed transportation company’s share price plunge by more than 50%. The company was even issued an Unusual Market Activity (UMA) query by Bursa Malaysia Berhad (KLSE: BURSA).
The company might not be a monopoly, but it has built a steady track record with increasing net profit margin over the last 10 years.
So what company is this, and more importantly, is this a buying opportunity?
Perak Transit Berhad (KLSE: PTRANS)
Perak Transit Berhad (PTRANS) is an investment holding company that develops, owns, and operates an integrated public transportation terminal (IPTT) in Malaysia. The company operates through IPTT Operations, Bus Operations, Petrol Stations Operations, and Telecommunication Tower Construction Operations segments.
The company operates Terminal Meru Raya and Kampar Putra Sentral terminals, both in the state of Ipoh, providing advertising and promotional space rental, shops and kiosks rental, project facilitation, terminal management, car parking, and taxi entrance services.
Brief financials
PTRAN’s revenue has been on a long-term uptrend. The company’s revenue growth run rate might be erratic, but it has always been growing its revenue. The only exception was in FY 2020 during the COVID pandemic when the company’s revenue growth came to a one-off stop. Over the past 9 years, PTRAN’s revenue has grown by 8.42% CAGR, or by +107%
Earnings per share wise, the growth magnitude haven’t kept pace and is far lesser than the revenue growth, coming in at +50%.
This is due to the enlarged weighted average outstanding diluted shares, which swelled from 484.51 million shares to 1.169 billion shares
The outstanding shares increase can be due to a few reasons. PTRANS has gone through a few rounds of bonus issues and a share consolidation exercise, which dilated its outstanding shares.
The company may not have conducted any rights issues or preferential offerings, but the exercise of warrants has also contributed to the increase in outstanding shares.
Due to its relative shortcomings in capital management, its ROA and ROE have been trending downwards – even though revenue and net income are still growing.
Managing Director trading his own shares
While the company was quick to clarify that it is unaware of any major announcements or events that could be affecting its share prices, the company’s own Managing Director was trading shares during the selloffs and rebound periods.
As a substantial shareholder, it is befuddling that the managing director would be making any buying and selling of shares. The director could have opt to buy shares as a vindication that business is as usual, with no tell-tale signs of any potential negative implications.
Not that it breaks any laws or rules, but retail shareholders often look to the management team’s action whenever there is a huge price drop in share prices. A buy often indicates the management is confident of turning things around, and takes the opportunity to buy more shares at a low price.
But a quick buy and sell activity? Investors might just infer that the management is taking advantage of the volatility to make a quick buck, something that usually retail traders partake in.
Cash Flow Generability and Margin
While PTRANS seems profitable, a deeper dive into its cash flow flashes some concerns.
Over a 10-year period, PTRANS as always been in the red for free cash flow. While it is noted that PTRANS is investing into smart bus stop systems and an electric vehicle (EV) Hub in Ipoh, the company’s frequent capital raising exercises does poses concerns on the profitability and cash flow generability of the transportation business.
While PTRANS might be a smaller company, its ROA and ROE is rather similar to ComfortDelGro Corporation Ltd. (SGX: C52). The infrastructure and transportation business might be evergreen, but it is capital intensive and highly competitive.
Fair Business Trading at a Fantastic Price?
With the recent selloffs, PTRANS look to be trading at a fantastic price in terms of valuation. The company’s stock price is trading at a P/E of just 5.19x, with a trailing dividend yield of close to 6%.
Whether the MD could have sold off his pledged shares is a question in contention. But if the management jumps in to purchase shares at current prices, it would be far more reassuring for retail investors looking to make a punt.
Comparing PTRANS’ historical returns against the KLCI index and SPY, there were periods where PTRANS clearly outperformed both.
But even before the recent selloffs, PTRANS had gone sideways just to be overtaken by SPY, and the selloffs means that investors who bought the shares 5 years ago are underperforming even the lacklustre KLCI index.
One man’s meat, my poison
I’ve never been a huge fan of deep value or severely discounted stocks that could have unfavourable sagas unfolding. Just like how I shied away from UnitedHealth Group Inc (NYSE: UNH) even when the value looked convincing and with superior quality and economic moat to PTRANS.
PTRANS might look to be a fantastic value stock for those who are up for the risk. But it is definitely not my cup of tea. And we might not have seen the end of the saga of its selloffs.
Compared to US stocks, where negative news are quick to hit the public officially, bad news for stocks in Asia often take time to manifest.
So what do you think? Do you think this is just a fat finger event, or is the show slowly unfolding?
p.s. if you want to learn how to analyse and find the best stocks to buy, Alvin shares our strategy at this live webinar.
