Valuation / Recommendation

We recommend SUBSCRIBING to Go Hub Capital (Go Hub), with a FV of RM0.62 based on 16x FY25F EPS, indicating a potential upside of 77% to the IPO price. Our target PE of 16x is at a 30% discount to comparable peers’ average valuation, given Go Hub’s smaller market capitalisation. We like the stock for its proven track record in implementing transportation IT solutions for KTMB, which makes it a frontrunner for several upcoming railway and bus transportation projects in Malaysia.

Investment Highlights

Proven track record. Go Hub has achieved an impressive 3-year revenue CAGR of 32%, rising from RM19m in FY20 to RM44m in FY23. This growth is attributable to the company's success in securing new transportation projects throughout the years, especially from KTMB. Banking on its expertise and proven track record with KTMB, management has guided that they are currently tendering for RM200m-300m worth of projects, which we believe could include 1) ECRL, 2) JB-Singapore RTS Link, 3) AFC upgrade (for LRT, MRT & Monorail lines), and 4) Cashless payment upgrade for Rapid KL buses.

Clinching sizeable contract will be major catalyst. Out of the four projects, the AFC upgrade for LRT, MRT, and Monorail lines is more immediate and likely to be much bigger in contract size (potentially RM156m based on our estimates). We believe Go Hub is a frontrunner to clinch this contract, as the company has first-mover advantage and has already delivered AFC with an open payment system for KTMB in 2023 (ahead of schedule). Also, based on our channel checks, we understand Go Hub is probably the only local player in this space, whereas past AFC contracts were mainly won by foreign vendors such as Spain-based Indra Sistemas (both LRT Line and MRT SSP Line) and France-based Affiliated Computer Services Solutions (MRT SBK Line). In this regard, we believe Go Hub has certain cost advantages.

Strong orderbook win to drive earnings and recurring income. We are rather bullish about Go Hub’s chances of clinching sizeable transportation projects, which leads us to assume strong order book replenishment of RM80m/80m/100m over FY24F-26F, respectively. As a result, we expect a substantial rise in its revenue to RM97m/118m, with earnings reaching new highs of RM15.5m and RM18.2m for FY25-26F. Go Hub’s recurring revenue base will also continue to grow, as completed projects often come with maintenance contracts (either fixed or on a revenue-sharing basis).

Risk factors for Go Hub include (1) Contracts termination and (2) Lost of key customer.

Source: Mercury Securities Research - 20 Jun 2024