Valuation / Recommendation

We have a SUBSCRIBE recommendation on ITMAX System Berhad with a target price of RM1.64 based on FY23F EPS of 6.1 sen and PEG of 0.9x, which is still a discount to the technology sector’s FY23F PEG of 1.2x. We like the stock for its attractive expansion plans and growth prospects. The target price represents a potential return of 53.3% over the IPO price.

Investment Insights

An experienced smart city solution provider with strong R&D capabilities. The company has an established track record of 9 years as a provider of networked system in the public space, having completed 24 projects worth more than RM100m. ITMAX has an in-house R&D team that is able to design and develop its own networked video surveillance, lighting, and traffic management systems.

This provides the company the advantage to supply its customers with a total customised solution to establish the infrastructure needed for a smart city and the flexibility for responding to customer needs. The company intends to hire a total of 23 personnel to cope for future expansion plans and strengthen its R&D capabilities.

Attractive expansion plans. ITMAX is one of the first home grown providers of public space network systems in Malaysia with a proven engagement with the capital city of Malaysia. By leveraging on its matured machine learning systems, the company plans to focus on its resources to expand its business to other states in Malaysia. The economies of scale will allow the company to replicate its model to other cities immediately, giving it a competitive edge.

The company also plans to expand its customer base which includes the shopping malls, office towers and hospitals by introducing cameras and related accessories to the market, providing network video surveillance by generating statistics and reports utilizing artificial intelligence that can act as a business intelligence tool which allows its customers to improve efficiency.

Strong order book. ITMAX has a contract-based order book based on the unbilled amount secured as at 5th Nov 2022 (LPD) which will provide earnings visibility until FY29. The company has an unbilled order book of RM558.9m, where RM77.7m is expected to be fully recognised from the LPD to Dec 2022 and the remainder to be recognised in (FY23 – RM113m, FY24 – RM83.6m, FY25 – RM83.6m, FY26 to FY29 – RM175.m).

Experienced management team. The company is spearheaded by MD Tan Wei Lun along with key senior management team which has up to 29 years of experience in various industries.

Risk factors. (1) Inability to renew or secure contracts. (2) Business may be affected by political, economic, social, and regulatory changes.

Source: Mercury Securities Research - 28 Nov 2022