The target price represents a potential return of 53.3% over the initial public offering (IPO) price of RM1.07 for ITMAX System, which is due to be listed on Bursa Malaysia’s Main Market on Dec 13.
Mercury Securities said the target price of RM1.64 was based on FY23F earnings per share (EPS) of 6.1 sen and price/earnings-to-growth (PEG) of 0.9x, which is still a discount to the technology sector’s FY23F PEG of 1.2x.
In a note, Mercury Securities said ITMAX is an experienced smart city solution provider with strong R&D capabilities.
“The company has an established track record of nine years as a provider of networked systems in the public space, having completed 24 projects worth more than RM100 million.”
ITMAX is one of the first home-grown providers of public space network systems in Malaysia with a proven engagement with Malaysia’s capital city, it added.
It added the company, spearheaded by managing director Tan Wei Lun, had an experienced management team which has up to 29 years of experience in various industries.
“By leveraging on its matured machine learning systems, the company plans to focus on its resources to expand its business to other states in Malaysia.
“The economies of scale will allow the company to replicate its model to other cities immediately, giving it a competitive edge,” said Mercury Securities.
The company also plans to expand its customer base which includes shopping malls, office towers and hospitals by introducing cameras and related accessories to the market.
This provides network video surveillance by generating statistics and reports utilising artificial intelligence that can act as a business intelligence tool which allows its customers to improve efficiency, it noted.
The company had launched its prospectus last Friday. It will have an enlarged share capital of 1.03 billion shares upon listing, and expects to raise RM342.4 million from the IPO.
ITMAX expects to have a market capitalisation of RM1.1 billion at the IPO price of RM1.07.
It also announced a dividend policy of at least 20% targeted payout ratio. It expects to raise RM203.89 million through the public issue of 190.55 million new shares.
ITMAX has earmarked 41.7% or RM85 million from the RM203.89 million raised for smart city application expansion to other local governments, federal ministries and existing customers, and 19.4% or RM39.5 million for network and telecommunications infrastructure expansion.
The IPO exercise also involves an offer for sale of approximately 129.45 million existing ordinary shares.
Its FY2021 profit after tax was RM29.2 million as compared to RM12.7 million a year earlier, while revenue in FY2021 stood at RM79.8 million from RM47.5 million the previous year.
ITMAX has a contract-based order book based on the unbilled amount secured as at Nov 5, 2022 (LPD) which will provide earnings visibility until FY29. It currently has an unbilled order book of RM558.9 million.
On potential risk factors, Mercury Securities listed the inability to renew or secure contracts, and that business may be affected by political, economic, social, and regulatory changes.