Redtone International Berhad - Navigating Short-Term Weaknesses
Fri, 21-Feb-2025 07:17 am
by Steven Chong • Apex Research

Counter

REDTONE (0032)

Target Price (RM)

0.950

Recommendation

Buy

Summary

  • RIB’s 2QFY25 CNP fell -31.9% yoy and -35.2% qoq to RM7.1m, bringing 6MFY25 CNP at RM18.1m (-35.2% yoy), which was below expectations, accounted to 29% of ours and consensus expectations respectively.

  • We slash our earnings forecast for FY25/FY26 by -31.1%/-25.8% after factoring delays in tower deployment and adjusting our EBITDA margin assumption from 25.6% to 22.6%.

  • Re-iterate our BUY recommendation with a lower target price of RM0.95, based on 6x EV/EBITDA.

 

Results below expectations. 6MFY25 CNP at RM18.1m (-35.2% yoy) came below expectations, accounting to 29% of our and consensus forecasted CNP. The lower revenue recognition in the MTNS segment came in as a surprise to us, given RIB’s substantial backlog order from its previous projects including 87 towers left from Jendela P1. Besides that, operating margins were under greater pressure than anticipated, reflecting intensified competition for government contracts.

 

YoY. 2QFY25 CNP dropped -31.9% yoy to RM7.1m in tandem with the lower revenue recognition from the MTNS segment, likely due to delays in project execution or the timing of revenue recognition under contractual terms. Revenue for the quarter shed -16.6% yoy to RM74.8m. 

 

QoQ. CNP decreased -35.2% qoq due to weakness across all segments compared to the previous quarter. Similarly, revenue slid -25.4% qoq.

 

Outlook. We remain optimistic about RIB’s long-term prospects due to its strong track record of successfully executing large-scale projects, particularly under national programs like Jendela. As Malaysia moves forward with its 5G rollout and digital infrastructure projects, we opined the Group’s deep expertise in building and upgrading telecommunications infrastructure will positions it well to capitalize on these emerging opportunities.  

 

Earnings Revision. Nevertheless, we acknowledge that short-term volatility could arise due to uncertainties around the timing of new contract awards as well as potential delays in project deliveries. We slash our earnings forecast for FY25/FY26 by -31.1%/-25.8% after factoring delays in tower deployment and adjusting our EBITDA margin assumption from 25.6% to 22.6%.

 

Valuation. Re-iterate our BUY recommendation on RIB with a lower target price of RM0.95 (previously RM1.10), by pegging 6x EV/EBITDA multiple and 0% ESG factored premium/discount based on three-star ESG rating.

 

Risk. Dependant on other operators to offer TS. Reliance on government projects. Intense competition. Regulatory and litigation risk.

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