SMRT: Uptrend remains intact

Better earnings ahead. We anticipate the robust performance observed in 1QFY24 to extend into 2QFY24, driven by strong site deployments given that utility companies typically utilize most of their capex in second half of the year. Looking forward, we anticipate increased site deployment from utility companies in Malaysia and Indonesia, alongside ATMI Indonesia. The former is actively pursuing smart grid initiatives, while the latter is transitioning its ATM from satellite to wireless connections. These strategic shifts are expected to be advantageous for SMRT, providing a consistent pipeline for site deployments and contributing to the proliferation of recurring income base for the group through its managed services.

Secured PLN Jakarta. To recap, SMRT successfully entered four regions (Lampung, Nusa Tenggara Timur, Jawat Barat, and Kalimantan Timur dan Utara) after securing PLN as a customer in 4QCY22. In 1QFY24, the group achieved a notable milestone by expanding its presence into the Jakarta district, marking its fifth regional win. The scope of work aligns with that of TNB and other regions in Indonesia, where SMRT is responsible for establishing wireless infrastructure for the region's distribution substations and may conduct protocol conversion if necessary. Management has disclosed that site deployment activities commenced in 1QFY24 and will be reflected in the upcoming quarter. Having penetrated only 5 out of 22 of Indonesia districts, we expect more districts to come on board over time given SMRT’s track record.

Making further inroad into oversea market. SMRT has secured its maiden contract from Air Selangor, marking its foray into the water segment. SMRT's scope of work involves establishing wireless infrastructure and installing sensors for critical operation sites such as treatment plants, pump houses, reservoirs, and DMZs for Air Selangor. It is worth noting that the water segment is likely to generate a higher revenue per sites compared to the power and financial services sectors over the same contract period due to the larger scope of work.

Uptrend remains intact. SMRT is current trading near its uptrend support region of RM0.99 -1.03, with indicators on the mend. In the wake of the higher lows pattern, a decisive breakout above RM1.05 will spur prices higher towards RM1.11-1.17-1.20 territory. Cut loss at RM0.91.

Collection range: RM0.99-1.00-1.02

Upside targets: RM1.11-1.17-1.20

Cut loss: RM0.91

Source: Hong Leong Investment Bank Research - 22 Jan 2024