This article first appeared in The Edge Malaysia Weekly on August 26, 2024 - September 1, 2024

FOLLOWING a series of corporate restructuring exercises, SMRT Holdings Bhd (KL:SMRT), through its main operating unit N’Osairis Technology Solutions Sdn Bhd, has become a pure-play enterprise Internet of Things (IoT) solutions provider, serving utility companies such as Tenaga Nasional Bhd and Pengurusan Air Selangor Sdn Bhd.

In an exclusive interview with The Edge, SMRT managing director Maha Ramanathan Palan says the Cyberjaya-based technology firm will focus on expanding its market share in the coming years, entering new regions and developing new products to serve more sectors.

“Our growth trajectory is shaped by two main strategies: expanding into new markets and developing new product verticals. For instance, we’ve progressed from being active in one country to three (Malaysia, Indonesia and the Philippines) and we continue to seek markets with similar developmental profiles to extend our reach.

“Our expansion into new countries is a significant growth area. We aim to establish ourselves as a digitisation player in the region, leveraging our experience in markets like Indonesia and the Philippines,” he says.

Despite regulatory and operational challenges in these countries, Maha says SMRT has achieved notable success and the group is now exploring new product verticals beyond the power sector to replicate its model in the areas of water management and sanitation.

“Our managed service model, which has proved successful in the power sector, is now being applied to new areas such as water management. The water sector faces challenges related to non-revenue water which is an issue locally and globally.

“Our goal is to provide solutions that help water operators reduce losses by offering better visibility and a quicker response to leaks. This involves not only deploying our technology but also adapting to the unique demands of underground infrastructure,” he explains.

SMRT installs, monitors and maintains the necessary hardware (including sensory devices, routers and SIM cards) at its customers’ operational facilities (such as outlets, onsite facilities, offices and factories) to establish end-to-end wireless network connections that are customised to its customers’ needs.

Through established wireless network connections, SMRT’s customers can collect and transmit various types of data between each operational facility, enabling them to monitor all their operational units at all times to ensure each one is fully functional.

According to Maha, SMRT has seen substantial growth in its earnings and the financial year ended June 30, 2024 (FY2024) marks the group’s first full financial year as a pure-play IoT player. More importantly, N’Osairis’ financial performance has been trending upwards in recent years.

“We maintained this positive momentum in FY2024 and we intend to build upon it in FY2025 and beyond. As we continue to deliver on our strategic goals, we hope our achievements will be reflected in our financial performance and create more value for our investors and stakeholders.

“It is noteworthy that more than 50% of our revenue is recurring in nature from our maintenance services, providing us with stable, predictable income and reflecting the high value of our services,” he says.

Last Tuesday, SMRT reported a net profit of RM6.21 million for 4QFY2024, bringing its full-year net profit for FY2024 to RM26.68 million. As at June 30, 2024, it had net cash of RM15.69 million, with total cash of RM26.28 million, against total borrowings of RM10.58 million.

There is no comparison with the preceding year’s results as SMRT had in April last year changed its financial year end from Dec 31, 2022, to June 30, 2023. For its 18-month financial period (from Jan 1, 2022) ended June 30, 2023, the group reported a net loss of RM16.63 million.

SMRT’s turnaround in FY2024 was mainly driven by stronger-than-expected site deployments throughout the year. Moving forward, it is targeting double-digit growth as it focuses on delivering sustainable and stable performance.

“Our focus remains on building a sustainable revenue model, partnering effectively with our customers and taking accountability for our solutions. We aim to continue to be one of the leading players in the digitisation of Malaysia’s power infrastructure, providing near real-time visibility and proactive management capabilities,” he adds.

Maha, 30, holds a Bachelor (Hons) of Chemical Engineering degree from the University of Manchester, UK, and a Master’s in Financial Engineering from Imperial College London.

He had served in investment-focused roles at Piton Capital LLP and British Petroleum plc, where he worked on a variety of deals, including Europe’s largest venture deal in 2018 with a valuation of over €2.5 billion.

His father Tan Sri Dr Palaniappan Ramanthan Chettiar, 68, is the non-independent non-executive director of SMRT and the single largest shareholder of the company with a stake of 29.71%, of which 16.079% is held via his private vehicle Special Flagship Holdings Sdn Bhd.

Some of the institutional shareholders of SMRT include Urusharta Jamaah Sdn Bhd, abrdn plc and Principal Malaysia funds.

On Aug 12, the Employees Provident Fund (EPF) emerged as a substantial shareholder in SMRT for the first time after raising its direct stake in the company to 5.017%. EPF has continued to mop up SMRT shares over the past two weeks and, at press time, owns 5.139% of the company.

Maha recalls that in 2006, SMRT’s initial public offering (IPO) was in the human resources (HR) technology and software space.

“Over the years, we have expanded into multiple industries, including HR services, software and higher education. Some acquisitions were successful; others, more challenging,” he says.

Maha joined in 2018 as a non-executive director. By then, SMRT had diversified into education and the IoT. “Shareholders questioned the business focus and, hence, when I took on the role of group managing director in 2021, we decided to divest non-performing acquisitions. For instance, we sold our HR software company to an Australian public-listed company.”

He says SMRT’s main strategy then was to refocus and streamline the business. “We decided not to be in areas where we lacked a significant presence or strong competitive advantage and instead aimed for a sustainable structure.”

SMRT underwent a major strategic shift starting in 2016 when it acquired a 64% stake in N’Osairis for just RM6 million. The group bought the remaining 36% last year for RM72 million, reflecting the significant growth and increased value of N’Osairis in recent years.

Founded in 2008, N’Osairis initially thrived on providing high-uptime connectivity solutions using third-generation (3G) wireless broadband. This space, however, was facing huge competition from larger telecommunications operators by 2016.

“Competing with large telecom players was tough due to their brand recognition and infrastructure. We decided to become a full spectrum player in the IoT space. The IoT, often seen as a buzzword, needed a clear value proposition and a strong defensive core. We moved from a pure communication player to an end-to-end solution provider, handling data capture, processing and actionable insights,” says Maha.

In 2018, SMRT targeted the Malaysian power sector and participated in a Tenaga tender. The goal was to develop a solution that would enhance monitoring of the grid infrastructure, manage the grid proactively from a reactive approach, reduce average power outage duration (SAIDI) and improve the customer experience. One of the key challenges was Malaysia’s unique grid infrastructure with various pieces of equipment implemented across different timelines, each with varying protocols.

“We won the tender and have since deployed our customised solutions across thousands of sites. A multinational corporation (MNC) was also a winner of the tender, but only we were able to scale our deployment given our tailored solutions.

“Today, our project is one of the key contributors to the reduction in SAIDI by close to 20%, enhancing the grid’s reliability and reducing outages. We offer a managed service model, providing continuous management and regular updates to Tenaga with a guaranteed uptime of 99.95%,” he says.

Maha adds that SMRT’s communication box is a critical component of the infrastructure that supports smart grid technologies.

“While they (communication boxes) may not be as widely known as the smart meters in homes, they are the robust backbone that enable those technologies to function seamlessly. They ensure seamless communication across substations and are integral to our service, which comes with a strict uptime guarantee,” he explains.

Over the past 12 months, shares of ACE Market-listed SMRT had gained 43 sen or 59% to close at RM1.16 last Wednesday, giving the company a market capitalisation of RM528.08 million. At this price, the counter was traded at a historical price-earnings ratio (PER) of about 20 times.

In comparison, ITMAX System Bhd (KL:ITMAX), one of its comparable peers, had more than doubled to settle at RM3.33, bringing its market capitalisation to RM3.42 billion. The stock was traded at a historical PER of over 50 times.

In an Aug 21 research report, Hong Leong Investment Bank (HLIB) Research maintained its “buy” call on SMRT, with an unchanged target price of RM2.28, representing a capital upside of 96%.

“Considering the substantial earnings potential arising from the utilities and financial services sectors and the growing recurring earnings base, we find SMRT’s current FY2026 forward PER of 14.9 times to be undemanding, making it a compelling case. The proliferation of managed site post site deployed will lead to a steady growth in the recurring income base,” it says.

On SMRT’s valuation, Maha says he prefers to “leave this to the experts”.

“For us, what sets SMRT apart in the industry is that we operate across multiple countries and offer a comprehensive managed service model,” he stresses.

While SMRT initially focused on Malaysia, where the group established a strong presence in the power sector, it has made a strategic shift outside the country, achieving success in Indonesia and the Philippines, says Maha.

In Indonesia, it clinched contracts from state-owned electric power distributor PT Perusahaan Listrik Negara (PLN) and independent automated teller machine (ATM) network provider PT Abadi Tambah Mulia Internasional (ATMi). Meanwhile, in the Philippines, the group secured a key financial services customer.

“We serve a diverse range of clients with a focus on major players like Tenaga, PLN and ATMi. Our customer base includes significant financial services clients and customers in various sectors. Our international revenue is growing, with countries like Indonesia and the Philippines contributing increasingly to our overall revenue.

“We’re also working with smaller but significant clients in the financial services sector and luxury retail. We aim to diversify and expand our revenue sources while maintaining a strong presence in our core markets,” says Maha.

In the near term, he remains optimistic about the potential of projects like that for Air Selangor, which will begin contributing to SMRT’s revenue this year.

“However, the nature of our industry means that growth from new contracts often involves gradual scaling rather than immediate large-scale impacts,” Maha explains. 

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