KUALA LUMPUR: Hong Leong Investment Bank (HLIB) research is optimistic about the prospects of public transport service provider SMRT Holdings Bhd, considering substantial earnings potential from the utility and financial services sectors coupled with the growing recurring earnings base.
In its note today the firm said it finds SMRT's current financial year 2025 (FY25) forward price to earnings ratio of 13.8 times to be very undemanding, making it a compelling case.
New managed sites increased by 1,130 (vs 952 in the six-month period of FY23) to 22,500 in the first quarter of FY24 thanks to encouraging new site deployments in Malaysia and Indonesia markets, which both registered quarter-on-quarter (QoQ) growths according to management.
Of this, a quarter of the new managed sites originated from its Indonesian operations, with the remainder coming from Malaysia.
HLIB research said SMRT management highlighted that the increase in managed sites from its Indonesian operations was primarily driven by customer ATMi, the largest independent ATM operator in Indonesia.
While the conribution from Indonesian national utility company PT Perusahaan Listrik (PLN) witnessed swift QoQ growth.
"Looking ahead, management anticipates a sustained increase in the number of new sites over the next two quarters, anchored by PLN and Tenaga Nasional Bhd (TNB) as utility companies spend bulk of their capex towards year-end," HLIB research said.
As at the first quarter of FY24, SMRT has successfully entered five regions, namely Lampung, Nusa Tenggara Timur, Jawat Barat, Kalimantan Timur dan Utara and Jakarta, after securing PLN as a customer in the fourth quarter of calendar year 2022.
Management has disclosed that site deployment activities commenced in 1QFY24 and will be reflected in the upcoming quarter.
"We are particularly optimistic about this expansion, given Jakarta's status as the largest city with the highest population in Indonesia. This demographic suggests a significant number of distribution substations due to the strong power demand in the area. Having penetrated only 5 out of 22 of Indonesia districts, we expect more districts to come on board over time given SMRT's track record," HLIB research said.
SMRT also recently established a wholly-owned subsidiary in the Philippines as part of its strategic initiative to expand into the country's utility and financial services sectors, which shares analogous challenges with the Indonesian market.
Drawing on its successful track record in serving ATMi, SMRT is presently in discussions with various ATM operators in the Philippines
HLIB researc maintains its buy call on SMRT with an unchanged target price of RM1.38.