Maybank Investment Bank (Maybank IB) raised Itmax System Bhd’s target price (TP) following the award of variation order for LED street light replacement from Kuala Lumpur City Hall (DBKL).
The research house nudged is TP 30 sen higher to RM2.40, which is a 14% increase and pegged its TP to unchanged 24.4x FY24E price-earning ratio (PER), a 20% premium to the simple PER average of its comparable peers.
“With works for the variation order expected to take a minimum of 24 months to complete, we expect it to increase Itmax’s group turnover by RM23.6 million per annum for FY24 and FY25E.
“In addition to accounting for general housekeeping adjustments, including the provision for minority interests for its Johor-related joint ventures (JVs), we raise FY24E and FY25E earnings by 14% and 12%, respectively,” it said in its research note today (Feb 13).
“We continue to like Itmax for its cost, security and technical advantages over its peers,” the research house added.
Itmax announced that it had secured variation order No. 7 (VO7) on Feb 6 from DBKL for the replacement of LED street lights in the district that were either broken, malfunctioned or had expired warranties.
This is additional scope of work for the street lighting supply, installation and maintenance contract it secured in July 2016 for a period of 5 years, which was subsequently renewed twice in August 2021 and August 2023.
The latest contract extension was for a tenure of 3 years until July 2026 with a value of RM52.8 million.
Maybank IB said latest VO7 contract is a positive surprise in its view, as it represents additional scope of work to the second extension granted last year.
“There had been no prior guidance for additional scope of work for the existing contract,” it said.
The research house said it understand that the contract sum for VO7 is RM47.2 million, which will cover the replacement cost of roughly 18,000 street light units in the district, or 36% of the 49,350 LEDs the group has installed for DBKL in the district.
“We do not overrule the possibility of further variation orders in the future, as wear and tear sets in for the remaining installed capacity over time,” it added.
