SMRT reported FY24 core net profit of RM26.1m, which came in above our projection at 113%. The outperformance was mainly driven by stronger-thanexpected site deployments throughout the year. Looking ahead, we expect sequential growth in 1HFY25 as utility companies typically ramp up capex spending during this period. Additionally, SMRT remains optimistic about reaching 1k PAPI sites in the Philippines by 2QFY25, which will further strengthen its recurring income base. Maintain BUY with unchanged TP of RM2.28 based on 30x P/E on FY26f EPS of 7.6sen.

Results in line. 4QFY24 core PAT of RM6.2m (+5.7% QoQ, +67.9% YoY) brought SMRT’s FY24 earnings to 26.1m, which beat our projection at 113% of full-year forecast. The positive deviation was mainly due to stronger-than-expected site deployments in FY24. FY24 core PAT was derived after adjusting for one-off disposal gain of its investment in subsidiary and foreign exchange loss amounting to -RM574k.

Dividend. None declared (6Q23: none). FY24: none vs FY23: none.

QoQ. Top line increased 11.2% as 3Q tends to be the weakest quarter of the financial year due to fewer working days during the festival season. Geographically, sales in Malaysia rose by 8.4%, while overseas sales declined by 6.2%. This disparity in performance was mainly due to a timing difference in revenue recognition for some PLN jobs, which will be reflected in the coming quarters. In terms of sales mix, a larger share of equipment delivery sales (lower margin) was recorded this quarter – this contributed to a 6.3 ppt drop in GP margin. Note that these equipment would then be installed in the upcoming quarters.

YoY. Sales gained 1.5% led by robust performance in overseas markets (+100%) followed by Malaysia (+2.5%). The muted growth in Malaysia was mainly due to the high base effect from the order backlog in 6Q23. All in, with a higher GP margin (+10.4 ppt), core PAT grew at a stronger pace of 67.9%.

YTD. No comparison for YTD is available as the corresponding period was undergoing restructuring activities, including a change in financial year end and the disposal of the education business.

Outlook. We expect the group to post sequential growth in 1H25, as utility companies typically concentrate their capex spending during this period, leading to higher site deployments. Insights suggest that Tenaga’s site deployment for CY24 is projected to slightly exceed CY23, mirroring the rising trend in DA installations by Tenaga. Similarly, greater contribution from PLN is also expected in these quarters, with steady growth anticipated from PLN Jakarta. Furthermore, the group is optimistic about reaching 1k PAPI sites in the Philippines by 2Q25, which will bolster its recurring income base. Lastly, the group's venture into the water segment is deemed another significant growth driver, given the growing non-revenue water issue in Malaysia.

Forecast. Unchanged.

Maintain BUY with an unchanged TP of RM2.28, as we ascribe a P/E multiple of 30x for SMRT pegged to FY26f earnings. Considering the substantial earnings potential arising from the utilities and financial services sectors and the growing recurring earnings base, we find SMRT's current FY26 forward P/E of 14.9x to be undemanding, making it a compelling case. The proliferation of managed site post site deployed will lead to a steady growth in the recurring income base.

Source: Hong Leong Investment Bank Research - 21 Aug 2024