$SMRT / 0117 (SMRT HOLDINGS BERHAD)

Sharing from my remisier

🔥 *Stock in focus: SMRT (FV RM2)* 🔥
We recently met with SMRT’s management and believe the market is undervaluing the company's growth potential.

*_Valuations and fair value_*
- SMRT is currently trading at a conservative valuation of 14.1x CY25 earnings, compared to peers trading at 24x.
- We estimate the fair value of SMRT to be RM2/shr, applying a target PER of 24x to CY25 earnings projected at RM36mn.
- SMRT presents a compelling investment opportunity with substantial upside potential, driven by its scalable business model, strong customer relationships, and expanding market opportunities in Southeast Asia.

*_Who is SMRT?_*
- Specializes in IoT solutions, offering scalable end-to-end wireless network connectivity services, including equipment installation, monitoring, maintenance, data collection, and network surveillance.
- High recurring revenue (over 50%) and minimal capex.

*_Growth drivers_*
- FY24E profit – RM25-26mn
- 9MFY24A net profit – RM20mn, 80% of full year estimates
- Net profits are expected to grow at 22-23% annually over the next two years (FY25 & FY26)
- Dirven by expanding site deployments, notably with major customers like TNB, PT PLN (Indo), and new ventures with financial and water utilities clients such as Pito AxM Platform (PAPI) and Air Selangor
- From 4,500 sites in FY24 to 6,000 sites in FY25 and 7,500 sites in FY26

*_Utilities sector expansion is particularly promising_*
- TNB plans to deploy an additional RM35bn between 2025-2030 towards upgrading power grid.
- TNB aims to achieve 41% of cumulative installation of distribution automation at substations by end of 2024, 64% by end of 2027 and 84% by end of 2030 from only 29% as of end 2023.
- SMRT has secured 5 out of 22 regions which include Lampung, Nusa Tenggara Timur, Jawa Barat, Kalimantan Timur dan Utara and Jakarta.

*_Other sectors_*
- SMRT's contract with PAPI in the Philippines for ATM infrastructure is progressing well
- Management maintained its target of rolling out its managed ATM infrastructure solution to 1,000 sites by end of CY2024.
- We understand that SMRT has deployed about 100 sites so far.
- Hence, PAPI is expected to add 900 sites in 1HFY25.
- To note, PAPI has approximately 3,000 sites in the Philippines.
- SMRT has secured a multi-year deal with Air Selangor to digitalize water management, which is anticipated to provide incremental revenue starting FY25.