We are positive on ITMAX System Bhd (stock code 5309) recent contract win from Johor Bahru City Council through its 65%- owned subsidiary, which increased its unbilled order book by RM105.3m to RM712.6m. We expect ITMAX to (i) deliver consistent multi-year earnings growth, underpinned by its sizable order book and robust recurring revenue model; and (ii) win further contracts in Johor in the foreseeable future. Maintain BUY with a TP of RM1.88 based on 26x PER (average PER of its regional peers at similar capacity and market cap) over FY24 EPS.

Referring to our previous report (hyperlink) dated 25 Aug 2023, regarding ITMAX’s potential CCTVs contract win in Johor, ITMAX’s 65%-owned subsidiary Southmax SB had on 18 Sept 2023 officially accepted the Letter of Award (“LOA”) awarded by Johar Bahru City Council (“MBJB”) in relation to the provision of video surveillance services, which includes a smart command centre and a closedcircuit camera system with artificial intelligence features on a service subscription basis. This LOA spans 180 months from 20 Sept 2023 to 19 Sept 2038, with a total value of RM105.3m.

This contract win will increase ITMAX’s unbilled order book to a high of RM712.6m and diversified its portfolio to a more robust recurring revenue and growth potential. With a budgeted capital expenditure of RM15m for the LOA, we anticipate annual revenue and net profit contribution of approximately RM7m and RM2.7m respectively for the LOA period as the margin is similar to the contracts awarded by DBKL. This is before accounting for potential revenue and margin upside if MBJB wants to increase the number of AI features from 15 to >20 akin to ITMAX’s CCTVs installed under DBKL jurisdiction.

While this LOA is already substantial, we believe it marks the beginning of ITMAX’s growth journey within Johor, given that the state has a total of 16 cities and town councils. Based on news media, there are contract visibilities in councils like Pasir Gudang, Iskandar Puteri and Kulai, altogether offering a potential 1,100 CCTVs up for grasp. Last but not least, ITMAX is also in discussion with other states such as Penang, Sabah and Selangor. In light of ITMAX's first-mover advantage in both hardware supply and installation as well as software excellence through its top-notch AI features, we are confident in its ability to continue expanding its order book.

Source: Rakuten Research - 20 Sept 2023

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