ITMAX: More to come

More contracts to come onboard. ITMAX recently secured Variation Order (VO) No. 7 from DBKL on February 6, 2024, for a contract sum totalling RM47m. The VO is awarded for the replacement of LED street lights which are broken and with expired warranty in the area of Wilayah Persekutuan Kuala Lumpur. With this new addition, ITMAX's total unbilled order book of RM917m (all-time high) will be recognized progressively up to May 2039.

Looking ahead, we foresee abundant contract opportunities for ITMAX amidst the increasing demand for networked systems from both public and private sectors. Specifically, we expect the company to secure more contracts in Johor, building on its initial success with the Johor Bahru City Council in September 2023 and subsequent acceptance of two additional LOAs from other councils within a month. Having secured contracts from only 3 out of 16 councils in Johor, we expect all to come on board over time to realize the integrated smart city system. We reckon that the group will be the front-runner to bag subsequent projects from the other 13 councils in Johor following the recent wins. Furthermore, these deals only comprise of video surveillance services and smart traffic light system – we do not discount that other solutions such as networked lighting and smart parking to be included in the future. We understand that it is at the final negotiation stage with another council and contract size is potentially similar to the former three, which is much larger than what we expected.

Growing its AI capability. In addition to the new income stream generated from recently secured contracts, ITMAX's strategy of enhancing its products with more advanced features is expected to boost the group's earnings through higher rental rates for its video cameras if customers adopt these features. Currently, ITMAX has developed 27 AI features and is actively working on an additional 15 features to enhance its existing product offerings. All in, we project ITMAX’s FY22-25F earnings to record a strong CAGR of 23.9%. Maintain BUY with a TP of RM2.91, indicating a 31.6% potential return from current level.

Bullish momentum to extend. ITMAX is primed for further gains towards RM2.37-2.45-2.54 after breaking above RM2.15 resistance on February 14th. Failure to surpass RM2.23 may prompt consolidation within RM2.15-2.22 to digest overbought indicators before targeting the mentioned levels. Cut loss at RM1.99.

Collection range: RM2.05-2.11-2.21

Upside targets: RM2.37-2.45-2.54

Cut loss: RM1.99

Source: Hong Leong Investment Bank Research - 21 Feb 2024