KUALA LUMPUR (Feb 9): Hong Leong Investment Bank (HLIB) has reiterated its “buy” call on ITMAX System Bhd and raised its target price (TP) by 40% due to the group’s premium valuation, as it has unique direct exposure to artificial intelligence (AI) theme, especially at the application level.

The research firm raised its TP to RM2.91 (from RM2.08) as ITMAX’s price-to-earnings ratio has been raised to 35 times of its forecasted earnings per share for the financial year ending December 31, 2025, from 25 times previously.

“We believe that this home-grown smart city integrated system and solution provider is a compelling case given its multi-year growth potential on the back of solid order and tender books,” HLIB wrote in a note on Friday.

HLIB’s latest TP is 41.95% higher than ITMAX’s opening price of RM2.05 on Friday.

The counter rose further to RM2.06 at the time of writing — still up three sen or 1.48% — giving the home-grown smart city integrated system and solution provider a market capitalisation of RM2.12 billion.

ITMAX, which debuted on the Main Market of Bursa Malaysia in December 2022, has gained 106% from its initial public offering (IPO) of RM1.

Despite the higher TP, HLIB has, however, maintained its earnings forecasts for ITMAX.

ITMAX was recently awarded a variation order (VO) worth RM47.2 million by the Kuala Lumpur City Council for the replacement of broken and expired warranty light-emitting diode (LED) streetlights.

“This VO will cover the replacement of about 18,000 street lights which is about one third of the total in KL (about 45,000-50,000) and we believe that it is likely to win the remaining with potential contract value of RM71-84 million. This VO is expected to be completed within one to two years,” said HLIB.

According to HLIB, ITMAX has secured three contracts from major city councils in Johor, specifically the Johor Bahru City Council, Iskandar Puteri City Council and Pasir Gudang City Council. The total value of these contracts amounts to RM296.2 million, spanning a 15-year duration.

The research firm said installation activities are actively in progress across all three councils. Simultaneously, ITMAX is working to expand its involvement to provide a more comprehensive and integrated smart city ecosystem, it added.

“Note that these are only three out of 16 councils in Johor and we expect all to come on board over time to realise the integrated smart city system. Furthermore, these deals only comprise video surveillance services and smart traffic light systems — we do not discount that other solutions such as networked lighting and smart parking to be included in the future," said HLIB.

“We understand that it is at the final negotiation stage with another council and [the] contract size is potentially similar to the former three, which [is] much larger than what we expect,” the research firm added.