Itmax System Bhd’s future contract win rate probability remains favourable, as we believe that ITMAX maintains a significant cost, security and technical advantage over its peers in the domestic smart city space.
Therefore, Maybank Investment Bank Bhd (Maybank IB) maintains its BUY rating, forecasts, and TP of MYR2.10, pegged to 24.4x FY24E PER, a 20% premium to the simple PER average of its comparable peers.
In its research note today (Dec 8), the research house said, Itmax, secured long-tenure 15-year CCTV LOAs from 3 of the 4 designated Greater Johor Bahru (GJB) town councils in 3Q23.
The group’s current unbilled orderbook stands at RM870 million.
“(With this in mind), we expect the LOA for the remaining GJB district of Kulai to be secured in 1Q24 and for further CCTV LOAs from Johor’s 12 other districts to be secured throughout FY24/25.
“Itmax’s tender pipeline also remains healthy at RM600 million, of which 80% are CCTV and 20% for security and intelligence (S&I), including bids for various traffic control and monitoring work in states outside KL and Johor.
“Winning new jobs in these states, for example Selangor, Penang, Sabah could serve as the next rerating catalyst, in our view,” it added.
Maybank IB also noted that the group continuously innovate to bolster margins, including introducing new AI features for its CCTVs.
“Itmax currently offers 27 AI features for its CCTVs, with monthly rental rates differing by customer in accordance with the number of features subscribed.
“We gather that 15 additional features (human behavioural pattern recognition, detailed vehicle profiling, traffic violation detection, infrastructure damage identification) are currently in development that could yield margin expansion once commercialised.
“As the new AI features are being developed based on ‘pain-point’ feedback from its town council customers, we believe that take-up will be positive post-implementation,” it said.
The group is stands to benefit from accommodative government policy in the smart city space.
“In Budget 2024, a combined RM 200 million was allocated to upgrade street-lighting and traffic light infrastructure at both federal and municipal levels.
“Owing to limited competition and an established public infrastructure S&I track record, we are cautiously optimistic of Itmax’s chances of securing related open tender contracts in the future.”
The research house added there are several risk factors that could negatively impact its earnings forecasts, target price and recommendation including high dependency on non-recurring project-based contracts and large single customer (DBKL).
“Although it has subsisting contracts and a long working relationship with its key customer, failure to replenish its orderbook could adversely affect earnings.”
