ITMAX operates in two business activities, namely (i) supply and installation of networked systems; and (ii) provision of networked facilities, whereby it is a PaaS provider which supplies an integrated and holistic services comprising of IaaS, SaaS, AIaaS and DBaaS. Its competitive advantages include: (i) in -house R&D team for the design and development of public space networked system; (ii) sustainable business model with project based and recurrent revenue; (iii) ownership of MAN in Kuala Lumpur; and (iv) healthy order and tender books. Initiate ITMAX with a BUY with TP of RM1.70.

Background. Making its debut on the Main Market today, ITMAX operates in two business activities, namely (i) supply and installation of networked systems; and (ii) provision of networked facilities, whereby it is a PaaS provider which supplies an integrated and holistic services comprising of IaaS, SaaS, AIaaS and DBaaS.

Total customised system integration with in-house R&D team. ITMAX in house R&D team has the capability of designing and developing its own networked video surveillance, lighting and traffic management systems. This gives the group the advantage to (i) provide customers with a total customised system integration to establish the infrastructure needed for a smart city which is in line with the Malaysia Government’s Smart City initiatives; (ii) the flexibility in responding to customer’s needs; and (iii) this also serves as a platform for the group to replicate its proven business model to other states or federal territories within Malaysia.

Sustainable business model. ITMAX’s business model comprises of two main pillars, which are (i) project based on lump sum contracts; and (ii) monthly recurring revenues based on the usage of its facilities. Its recurrent revenue stream provides assurance of continuing top-line and moderates some of the lumpy nature revenue of its project based business.

Ownership of private MAN. The MAN when bundled with its integrated systems and solutions serves ITMAX with the advantage of (i) providing convenience to customers as the group are able to configure and integrate various systems to its MAN; (ii) increases customers’ dependency on the group; and (iii) enable the group to meet the requirements of SLA without having to depend on third party network providers.

Healthy order book to sustain in the mid-term. As of Nov 2022, ITMAX has 19 subsisting contracts with a total unbilled order book of RM598.2m which comprises of the provision of networked facilities for the video surveillance facilities for DBKL and PDRM’s lockup facilities, leasing of telecommunication towers and monopoles, and supply and installation of networked systems. The remaining portion of its order book will be recognised progressively up to the Dec 2029. As end of 3Q22, ITMAX’s tender book stood at RM600m-800m.

Financials. ITMAX’s FY21-24 turnover is projected to expand at a CAGR of 29% yielding an impressive earnings CAGR of 32% supported mainly by (i) more video cameras installed; (ii) more networked street lights deployed; and (iii) more traffic management system deployed. Post IPO, we also project that it will have a strong balance sheet with a net cash position of RM146m (or 14 sen per share) which will comfortably fund its expansion plans.

Initiate with BUY with TP of RM1.70. We ascribe a P/E multiple of 25x for ITMAX pegged to FY24f earnings, resulting in a TP of RM1.70. As there is no exact local comparable, the multiple ascribed is in line with its global peers’ average of 24.5x which consists of smart city solution providers, PaaS, IaaS, SaaS, AIaaS and DBaaS players. At about only 15.7x FY24f earnings in on its debut, we believe that this home grown smart city integrated system and solution provider is a compelling case given its multi-year growth potential on the back of solid order and tender books.

Source: Hong Leong Investment Bank Research - 13 Dec 2022