Reach Ten Holdings Berhad - Bridging the Connectivity Gap in East Malaysia
Tue, 15-Apr-2025 07:27 am
by Steven Chong • Apex Research

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REACHTEN (5332)

Target Price (RM)

0.58

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Key Investment Highlights

Jendela Phase 2 and 5G infrastructure projects from MNO to drive orderbook replenishment. With Jendela P2 on the horizon, we believe Reach Ten (RT) is well-positioned to capitalise on the opportunities when it presents, premised to its proven track record and strong presence in government-led telecommunications projects. Although the contract value for Phase 2 has yet to be disclosed, the project is anticipated to involve the construction of 2,500–3,000 towers which is twice the scale of P1. Slated to commence by end-2025, Jendela P2 may present an upside surprise to our valuation, as it has yet to be incorporated into our current forecasts. 

 

Unlocking Sarawak’s underserved telco connectivity potential. Malaysia is advancing its 5G rollout as a national connectivity backbone and a catalyst for realizing the MyDIGITAL vision of becoming a regional digital economy leader. We opined there is ample opportunity to tap into Sarawak’s underdeveloped telecommunications connectivity landscape, offering strong potential for infrastructure development and service expansion. Despite notable improvements in 4G coverage across Sarawak following the rollout of the Jendela initiative, many rural areas remain underserved due to difficult mountainous terrain and low population density. This creates strong growth opportunity for RT to expand its satellite services into these underdeveloped regions using its VSAT technology. The solution is both cost-effective and scalable, requiring minimal infrastructure and functioning independently of terrestrial networks, ensuring reliable connectivity even in remote or infrastructure-deficient areas.

 

Strong recurring income contribution to underpin long-term revenue stability. Supported by long-term contracts with government-owned and government-linked entities, the Group enjoys stable and predictable cash flows that underpin its operations and provide a solid foundation for future project expansion. In FY24, over 90% of the Group’s revenue is expected to be recurring, largely stem from the provision of VSAT broadband services to government agencies and rural communities. We believe VSAT services tend to foster strong customer stickiness, given their critical role in delivering reliable connectivity to remote and underserved areas where alternative solutions are limited or unavailable. The Group’s order book currently stands at RM175m, anchored by government-led initiatives such as Jendela P1 and Saluran.

 

Building future roadmap for fibre optic network. RT intends to expand its fibre optic network, beyond its existing base of operations in Kuching. This includes the roll out three new fibre networks into major cities including Miri (92km), Sibu (87.3km), and Bintulu (68.9km). We gather that a significant portion of this planned expansion has been earmarked by existing clients in response to rising demand for RT’s broadband services. We view this development positively, as the fibre segment has delivered attractive gross profit margins ranging between 40% and 56% over the past two years. 

 

Valuation & Recommendation. We recommend Subscribe to RT’s IPO with a target price of RM0.58, implying a total potential upside of 14.5% from the IPO price. Our valuation is based on a P/E multiple of 11.2x, which reflects a c.10% premium over the average of selected peers. This premium is warranted given RT’s superior profit margins and more resilient earnings profile.

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Opinions, estimates and projections in this report constitute the current judgment of the author. They do not necessarily reflect the opinion of Apex Securities Berhad and are subject to change without notice. Apex Securities Berhad has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.

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