All-time high 4Q22 core net profit of RM14m (+4% QoQ, +>100% YoY) lifted FY22’s to RM45m (+48% YoY), which exceeded expectation, accounting for 107% of our full-year forecast. The outperformance was attributable to higher contribution from higher-margin and recurring video surveillance and analytics services. As borders reopened and restrictions lifted, it is looking to continue its growth by expanding its service offerings and expanding into other geographical territories and segments. ITMAX is cautiously optimistic that its future prospects remains favourable. Reiterate BUY with a higher TP of RM1.80.

Beat expectation. All-time high 4Q22 revenue of RM36m (+16% QoQ, +46% YoY) translated into a core net profit of RM14m (+4% QoQ, +>100% YoY), lifting FY22’s to RM45m (+48% YoY), which exceeded expectation, accounting for 107% of our full year forecast. The positive surprise was attributable to the stronger-than-expected adjusted EBITDA margin. FY22 core earnings was arrived after adjusting for IPO expenses (+RM3.9m) and forex loss (+RM426k).

Dividend. Recommended an interim single tier tax-exempt DPS of 0.8 sen which goes ex on 13 Mar. FY22 DPS amounted to 0.8 sen.

QoQ. Revenue was higher by 16% to RM36m thanks to higher contribution from video surveillance and analytics services (VSAS, +19%), telco and network infra services (TNIS, +10%) and supply, install and maintain services (SINMS, +18%), which was more than sufficient to offset the decline in trading revenue (-75%). Despite the higher effective corporate tax rate of 32% (3Q22: 26%), core PAT grew at 4% to RM14m.

YoY. Turnover expanded by 46% mainly driven by VSAS (+>100%), TNIS (+24%) and trading revenue (+>100%) which was more than sufficient to offset the contraction in SINMS (-33%). In turn, core earnings gained >100%. Despite the higher D&A (+84%) and higher effective tax rate (4Q21: 48%), core earnings more than doubled thanks to higher contribution from higher-margin and recurring VSAS.

YTD. Top and bottom lines added 35% and 48% to RM107m and RM45m, respectively. Segmental revenue growth: VSAS (+>100%), TNIS (+13%), SINMS (- 29%) and trading revenue (+65%).

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.

Outlook. As borders reopened and restrictions lifted, it is looking to continue its growth by expanding its service offerings and expanding into other geographical territories and segments. ITMAX is cautiously optimistic that its future prospects remains favourable.

Forecast. After tweaking model based on the deviation mentioned above, our FY23- 24 earnings forecasts are lifted by 4% and 6%, respectively. Reiterate BUY with a higher TP of RM1.80 (previously RM1.70), reflecting the upward earnings revision. Our TP is pegged to unchanged 25x PE multiple of FY24f earnings. 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 - 28 Feb 2023