We reiterate our bullish outlook on ITMAX System Bhd (ITMAX, stock code 5309) following its recent contract win with the Pasir Gudang City Council, which increases its unbilled order book by RM79.62m to another record high of RM903.5m. Our optimism is premised on (i) ITMAX’s ability to crystallize a multi-year earnings growth pattern via recent contract winning spree in the Johor state and potentially into other states; and (ii) ITMAX’s high business certainty from its expanding recurring revenue and profit stream, a quality that is highly sought after in times of prevailing volatile market conditions. Maintain BUY with a TP of RM2.06 based on 26x PER (average PER of its regional peers at similar capacity and market cap) over FY24 EPS.

Following our recent updates dated 20 Sept 2023 and 25 Sept 2023, ITMAX’s 65%-owned subsidiary Southmax SB has added another contract win from Pasir Gudang City Council (MBPG) for the provision of video surveillance services including a smart command center and a closed-circuit camera system with artificial intelligence features (Ais) on a service subscription basis. The contract spans 15 years with an additional 7 months allocated for installation, from 10 October 2023 to 9 May 2039, with a total contract value of RM79.62m. The contract awarded involves the provision of 340 CCTVs and 33 traffic controllers (TCs) with 15 Ais to the district and would require a budgeted capital expenditure in the range of RM12m to RM13m.

To recap, this is the third contract ITMAX secured in Johor state after (i) MBJB’s (Johor Bahru) RM105.3m contract that covers 500 CCTVs; (ii) MBIP’s (Iskandar Puteri) RM111.24m contract that covers 500 CCTVs and 34 TCs. All these contracts were secured within 1 month, a testament of ITMAX’s scalability once it penetrates into a new market. This MBPG contract win will bring ITMAX’s unbilled order book to record high of RM903.5m. With this MBPG contract, we forecast revenue and net profit contribution of RM5.11m and RM1.9m respectively during the LOA period, with margins expected to be similar to the earlier ones.

ITMAX has improved its appeal as a business with robust recurring revenue stream and visible earnings. We are confident of ITMAX’s growth prospects, driven by its promising potential to penetrate the remaining 13 Johor city councils. Lastly, ITMAX’s success across Johor increases our conviction of the company replicating similar achievements into other states namely Penang, Sabah and Selangor.

Source: Rakuten Research - 11 Oct 2023

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