• T7 Global announced that it has secured a contract from Tenaga Nasional Berhad (TNB) to supply close to 100k units of smart meters that is worth RM21mn for a 2-year period until Sep 2025.

• While the contract value is rather small, we are positive with this as the company may generate recurring income from similar service given TNB’s target to install up to 9mn units by end 2029.

• We raised our FY24F/FY25F earnings estimate by 5%/3% to account for the latest contract win. Overall, we look forward to its earnings growth in 3Q23 from (i) maiden income from TSeven Elise MOPU, and (ii) construction profit from KLIA baggage handling system contract.

• Upgrade T7 Global to a BUY (from a HOLD) with a higher SOPderived TP of RM0.52. Our TP implies 10x FY24F P/E.

Secured a Smart Meter Supply Contract to TNB

T7 Global announced that it has secured a contract from TNB to supply 79,800 units of Single Phase Radio Frequency Smart Meters and 19,950 units of Three Phase Radio Frequency Smart Meters. The value of the contract is approximately RM21.17mn. The company expects to complete the contract within 2 years until 28th Sep 2025.

Expanding Revenue Base

While the contract value is rather smallish as compared to its existing orderbook of RM2.4bn, we are still positive with this contract as it will (i) diversify its revenue base from oil and gas segment, (ii) expand its client base, and (iii) potential recurring jobs from TNB smart metering project. Note that TNB has embarked on Smart Meter project since 2016 which is intended to (i) digitalise its monitoring and billing processes, and (ii) provide consumers with near real-time information on electric consumption. According to TNB annual report, it has installed 2.6mn smart meters as at end 2022 and it expects to install a total of 9mn units of smart meters by end of 2029.

Change to Earnings Forecast

We raised our FY24F/25F earnings forecast by 3-5% (Table 2) to account for the latest contract wins. In near term, we expect a bumpup in earnings in 3Q23 driven by new income from TSeven Elise MOPU which has achieved first gas on 11th Jul 2023. Besides that, there will also be revenue recognition from construction progress of KLIA baggage handling system (BHS) contract following preparation works done in 2Q23. The company target to replace half of existing BHS by end of 2024 before the contract ends in 2025.

Upgrade to a BUY with higher TP of RM0.52

We upgrade T7 Global to a BUY with a higher SOP-derived TP of RM0.52 (from RM0.50). This implies 10x FY24F P/E. Overall, we remain optimistic on its earnings growth to be driven by new (i) recurring income from two MOPU assets and (ii) its expanded scope of services.

Source: BIMB Securities Research - 10 Oct 2023