Binacom (listed in Jan 2018 and trading 16% below its IPO price of RM0.46) is a provider of support services for satellite, mobile and fibre optic telco network. We view Binacom as a potential beneficiary of outsourcing trends, spectrum reallocation exercise, implementation of the National Fibre Optic and Connectivity plan and changing technological trends (from 4G to 5G deployment in the long term). Outlook remains positive following the construction of the new teleport facility and the purchase of high-definition Digital Satellite News Gathering (DSNG) system to provide new services to customers. Valuation is undemanding at 10.5x trailing PE (44% below peers), Binacom is a cheaper proxy for investors seeking exposure to the telecommunications support sector. Technically, a decisive breakout above downtrend line near RM0.40 will spur prices higher to RM0.46-0.485 levels.

Profile: Binacom is mainly involved in three business segments, namely: (i) satellite network servicing, (ii) mobile network servicing, and (iii) fibre-optic network servicing. According to its prospectus, Binacom has provided operations and maintenance (O&M) services for c.1,750 VSAT (Very small Aperture Terminal) ground stations installed at petrol stations, 4,500 overall VSAT ground stations, and 11,000 mobile BTS sites, representing a market share of 57%, 64% and 28% in the respective area. Meanwhile, the group’s recurring income makes up of c.49% of group’s total revenue on average, widely owing to its O&M services for the satellite (including uplink and downlink services), mobile and fibreoptic segments. Presently, the group is one of the few players in Malaysia, who provides supporting services across three main telecommunication mediums, mitigating the risk of over dependency on any segments.

Rerating catalysts. We view Binacom as a potential beneficiary of outsourcing trends, spectrum reallocation exercise, implementation of the National Fiber Optic and Connectivity plan and changing technological trends (from 4G to 5G deployment in the long term), led by the mobile and fibre optic segments. According to the Communications and Multimedia Minister Gobind Singh, the 5G task force will provide recommendations for 5G deployment in the country after the completion of test beds and trials in Putrajaya and Cyberjaya from April-Oct 2019. For its mobile segment, Binacom is likely to benefit from outsourcing opportunities and the ongoing spectrum reallocation exercise, as telco players may need to carry out network recalibration works and/or to install and commission new network equipment.

On its fibre optic division, the continuous expansion of fibre optic networks nationwide will create opportunities for related works, which are set to expand and upgrade their 4G LTE network coverage coupled with the implementation of the National Fibre Optic and Connectivity plan.

Binacom is also going to reap the fruits starting from FY20 upon the completion of the construction of the new teleport facility and the purchase of high-definition Digital Satellite News Gathering (DSNG) system, providing new services to customers, such as satellite downlink services for video content, managed satellite network services, uplink and downlink services to send and receive video data between Malaysia, and other countries and regions thereby creating opportunities for new revenue stream.

LT growth from regional expansion plans. Binacom plans to expand into regional countries, particularly into Vietnam, Myanmar and Laos to grow its business moving forward, via strategic partnerships and/or joint collaborations with telcos, equipment suppliers, and supporting service providers in respective countries as users in these markets are still underserved

Pending a downtrend line breakout above RM0.40. After hitting double bottoms at RM0.36 on 10 & 18 Dec, Binacom is on the verge of a downtrend resistance breakout near RM0.40. A decisive breakout above RM0.40 is likely to lift share prices higher towards RM0.41 (200D SMA) and RM0.46 (61.8% FR) before reaching our LT objective at RM0.485 (76.4% FR). On the flip side, key supports are situated at RM0.37 (weekly lower Bollinger band) and RM0.36. Cut loss at RM0.34.

Source: Hong Leong Investment Bank Research - 15 Apr 2019