KUALA LUMPUR (Feb 5): ICT Zone Asia Bhd (KL:ICTZONE) has attracted analyst coverage, with TA Securities initiating a report on the company's strong earnings prospects.

The house started its coverage on the company with a 'buy' recommendation and a fair value of 27 sen, implying an upside potential of 42%.

TA projects earnings to grow at 20% to 40% over the next few years, with revenue for the financial year ending Jan 31, 2027 (FY2027) expected to reach around RM240 million and profit after tax of RM20 million.

“The group is expected to maintain an average net margin of 10% over the same period, supported by an ongoing tender book of RM539.3 million,” it wrote.

The brokerage believes ICT Zone’s order book replenishment assumptions are well supported by a mix of new customer acquisitions and repeat demand from existing clients.

New project wins continue to broaden the company’s customer base, while contract renewals provide continuity and depth to its pipeline. 

“The [growth] trajectory continuous annual growth is underpinned by a stable annual order book replenishment target of RM200 million, RM250 million and RM300 million for FY2026, FY2027 and FY2028 respectively," said the house, while noting the group's current RM312.3 million order book.

In terms of valuation, TA noted that there are no listed Malaysian companies primarily offering technology finance (TechFin) solutions (with rental subscription models for ICT solutions). 

Nevertheless, ICT Zone is benchmarked against VSTECS Bhd (KL:VSTECS) due to comparable IT products and client exposure.

The assigned price-earnings (P/E) multiple of 11 times represents a 20% discount to peers, justified by ICT Zone’s smaller market capitalisation, higher gearing from its asset-backed TechFin model, and shorter public track record following its initial public offering.

TA highlighted several investment merits. At least half of ICT Zone’s revenue is recurring, underpinned by long-term government contracts with typical three-year tenures.

Its client base is diversified across about 1,000 entities, with the largest single contract contributing only around 10% of the order book, mitigating concentration risks.

Profitability remains healthy, with net margins at about 10% and room for further expansion as scale improves and higher-value services gain traction.

The current revenue base of RM150 million is supported by an order book of roughly RM310 million, providing a strong earnings visibility.

“Growth is further reinforced by annual government ICT spending of about RM1 billion, shorter contract replenishment cycles driven by rapid technological advancement, and rising demand for rental and subscription-based IT models amid higher device prices.”

TA also highlighted ICT Zone’s commitment to distributing up to 20% of annual net profit as dividends provides downside support to the stock and enhances shareholder returns. “The group’s ability to sustain payouts is underpinned by recurring, contract-backed cash flows and disciplined capital allocation.”

“Trading at a forward P/E of about seven times, ICT Zone offers a clear valuation disconnect given its high earnings visibility and long-term government contracts. For a technology counter with order book-driven growth, the valuation is considered compelling, with the share price near the lower end of its historical range,” TA said.

Key risks include reliance on strategic partners and the need to secure sufficient financial capital to deliver new orders and contracts.