Redtone International Berhad - Massive Opportunities on Upcoming 5G rollout and Jendela P2
Fri, 03-Jan-2025 07:28 am
by Steven Chong • Apex Research

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REDTONE (0032)

Target Price (RM)

1.10

Recommendation

Buy

Summary

  • RIB is anticipated to deliver strong earnings growth, driven by outsourced contracts from MNOs for 5G installation works and Jendela P2 projects.

  • Our core earnings forecast assumption includes (i) 87 towers remaining in the pipeline pending deployment, (ii) unbilled orderbook of c.RM900m, (iii) c.RM600m from Jendela P2 projects, and (iv) 5G infrastructure spending from MNOs to support long-term orderbook replenishment.

  • We initiate coverage on RIB with a BUY recommendation and TP of RM1.10 by pegging 6x FY26F forward EV/EBITDA multiple and three-star ESG rating.Substantial orderbook at c.RM900m with opportunities in Jendela P2 tender. We estimate order book could potentially double up, should RIB maintain a similar market share in Jendela Phase 2. Presently, the Group secured c.257 towers out of 1,661 towers in Phase 1, representing a 15% market share. Consequently, we project RIB could secure an additional order book of c.RM600.0m, which we deemed to be a conservative target, given the larger scope of Phase 2.

 

Hiccups in Jendela Phase 1 may provide opportunity for RIB to secure a larger slice of the pie. Following delays in tower construction under Phase 1, we believe the Government may discontinue partnerships with existing underperforming contractors under Phase 2, potentially enabling other players to capture a larger market share. Given the Group's longstanding relationship with the Government and its track record in executing numerous large scale government projects, we believe RIB is well positioned to secure a larger slice of the pie.

 

Robust balance sheet and cash rich. RIB maintained a healthy balance sheet, with net cash position over the last five years. Given its strong cash position, we believe the Group is well-positioned to dish out better dividends in the future upon stronger earnings recognition from orderbook expansion.

 

4G sites upgrades as well as operational and maintenance jobs will sustains long-term revenue stream for the MTNS segment. With the announcement of the second 5G network operator, Malaysia is poised to advance to the next phase of its 5G rollout. Currently, half of its c.RM600m order book comprises a 5-year operations and maintenance contract, providing a steady source of recurring income for the Group.

 

Valuation & Recommendation. We initiate coverage on Redtone International Berhad with a BUY recommendation and a target price of RM1.10 by pegging 6x FY26F forward EV/EBITDA multiple to forecast and three-star ESG rating.

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