Company Highlights:
ITMAX System Bhd (ITMAX MK) is leading the charge in Malaysia’s smart city industry with its comprehensive video surveillance and analytics solutions. ITMAX’s business momentum continues to build, with significant contract wins in Johor and a strong ESG score upgrade, positioning it as a key player in the Malaysian tech sector.
Investment Recommendation:
Buy (Target Price: MYR 4.25; Current Price: MYR 3.27, Upside: 30%)
Investment Thesis:
ITMAX is an outstanding investment opportunity due to its robust growth in the nascent video surveillance and smart city solutions industry in Malaysia. The company’s strong contract momentum, particularly in Johor, sets it up for long-term success, making it a top recommendation in the technology sector. ITMAX is well-positioned to capitalize on the increasing demand for smart city infrastructure and services, offering investors a chance to gain from the growth of an underpenetrated market. With a recent focus on environmental, social, and governance (ESG) improvements and solid financials, ITMAX is expected to deliver consistent revenue growth, supported by its expanding presence in public surveillance and smart parking systems.
Detailed Company Analysis:
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Financial Results & Earnings Revisions/Risks:
- ITMAX’s revenue for FY23 was MYR 150 million, with projections indicating substantial growth over the next three years, with estimates reaching MYR 313 million by FY26. This translates to a compounded annual growth rate (CAGR) of 24.5%.
- EBITDA margins are forecasted to remain high, around 67%, reflecting the company’s successful transition to a recurring revenue model.
- Risks include the potential loss of key contracts, particularly with the Kuala Lumpur City Hall (DBKL), and higher-than-expected costs from expansion efforts. However, ITMAX’s ability to diversify its clientele mitigates these risks.
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Stock Impact & Valuation:
- ITMAX’s valuation, with a PEG ratio of 1.4x and an implied P/E of 42.1x for FY25, remains attractive given its projected earnings growth.
- The company’s consistent contract wins are likely to drive share price appreciation. ITMAX is also trading at a core P/E of 28.8x, which is expected to reduce to 25.7x by FY26.
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Share Price Catalysts:
- ITMAX’s contract momentum in Johor, particularly its latest win for smart parking services in Tangkak District, is expected to contribute significantly to future revenues.
- With 41,112 parking bays already under its administration and an estimated revenue potential of MYR 22.7 million annually for every 50,000 secured parking bays, ITMAX’s exposure to the lucrative smart parking market is expected to accelerate earnings growth.
- Another key catalyst is the company’s improving ESG performance, which has enhanced its attractiveness to institutional investors focused on sustainability. ITMAX’s ESG score rose to 66/100 in FY23, from 41/100 previously.
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Earnings Outlook & Financial Targets:
- Core net profit for FY24 is expected to hit MYR 77.4 million, with an anticipated rise to MYR 131 million by FY26. The company’s free cash flow, which turned positive post-IPO, is projected to reach MYR 95.6 million by FY26.
- ITMAX is also targeting a higher return on equity (ROE) of 24.5% in FY26, from 20.3% in FY23, with a stable net dividend yield forecasted to increase from 0.7% in FY23 to 0.8% by FY26.
Recommendation Date:
September 13, 2024
Broker Information:
This report was prepared by Maybank Investment Bank Berhad.
Conclusion:
ITMAX System Bhd stands out as a promising growth stock in Malaysia’s emerging smart city and surveillance sector. Its leadership position, coupled with consistent contract wins and a focus on ESG, makes it a compelling investment for those looking to tap into the expanding tech infrastructure market in Southeast Asia.
