Redtone International Berhad - Moderate Earnings Amid Slower Billings
Fri, 23-May-2025 07:25 am
by Steven Chong • Apex Research

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REDTONE (0032)

Target Price (RM)

0.95

Recommendation

Buy

  • RIB’s 3QFY25 CNP fell -9.4% yoy but rose +86.9% qoq to RM13.3m, bringing 9MFY25 CNP at RM31.5m, which was within expectations, accounting for 75.8% of our expectations.

  • The MTNS segment is expected to post flattish earnings growth, as most of the progressive billings from Jendela P1 have already been recognised, assuming no material new contract wins in the near term.

  • Re-iterate our BUY recommendation with unchanged target price of RM0.95, based on 7.4x EV/EBITDA.

 

Results within expectations. 9MFY25 CNP at RM31.5m (-7.7% yoy) came within expectations, accounting for 75.8% of our forecasted CNP. The CNP figure is derived after stripping out one-off adjustments of RM1.8m (writeback allowance for doubtful debts: -RM1.3m and forex gain: -RM0.5m).

 

YoY. 3QFY25 CNP dropped -9.4% yoy to RM13.3m in tandem with the lower revenue recognition from the MTNS segment as higher base of billings was mostly completed in 1QFY25. Revenue for the quarter shed -11.0% yoy to RM66.6m. 

 

QoQ. CNP jumped +86.9% qoq mainly due to higher profit contribution from MTNS segment, with operating margin expanding significantly from 18.8% to 29.6%. Similarly, revenue slid -11.0% qoq, dragged by weakness across all segments except for the Cloud & IoT segment, which returned to the black after posting losses in previous quarter

 

Outlook. Moving forward, we expect the MTNS segment to register flattish earnings growth, as the majority of progressive billings from Jendela P1 have already been recognised, assuming no new contract wins in the near term. Nonetheless, we remain optimistic on the Group’s prospects, given its established track record and execution capabilities. We believe the Group stands a good chance of securing additional contracts under P2, with potential awards likely to be announced towards the end of the year.

 

Earnings Revision. Maintained.

 

Valuation. Re-iterate our BUY recommendation on RIB with unchanged target price of RM0.95 by pegging 7.4x 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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