KUALA LUMPUR: Public Investment Bank Research has a fair value of 54 sen for Binasat Communications Bhd
, which is six sen above the IPO price of 48 sen.
It said on Friday it had used the price-to-earnings (P/E) valuation methodology to derive its fair value for Binacom reflecting the company’s growth potential through its planned capital expenditure.
“Our fair value of 54 sen is pegged to a c. 11 times P/E multiple, based on our FY2019F EPS of 4.9 sen, assuming c. 60% discount to the average 2018 price-to-earnings ratio (PER) multiple of 27.6 times for telecommunication segment, due to its relatively small market capitalisation,” it said.
PIVB Research said Binacom’s core activities are to provide support services for satellite, mobile and fibre optic telecommunications networks which includes installation and commissioning (I&C), and operations and maintenance (O&M) services for its customers.
Customers that it serves include all the major telcos in Malaysia, either directly or indirectly through equipment suppliers.
Binacom also provides uplink and downlink services for the satellite network.
“As the company focuses on aggressive organic growth to strengthen its presence in local telecommunications network supporting services industry, we therefore value Binacom at 54 sen based on 11 times FY2019F EPS, ascribing a 60% discount to telecommunication sector’s average PER of 27.6 times.
“We reckon a discount is warranted given Binacom’s small market capitalization relative to its peers. The IPO is expected to raise approximately RM39.6mil from the issuance of 86 million new shares, with 64.6% of its proceeds to be utilised for capital expenditure that is earmarked for future expansion, through setup of teleport and regional offices and purchase of transportation means, tools and equipment,” it said.
Binacom’s growth will focus on i) setup of new teleport facility with satellite downlink services for video content, ii) O&M services capability enhancement, and iii) fiber optic network I&C services capability enhancement, and iv) regional business expansion particularly into Vietnam, Myanmar and Laos, which is still at preliminary stage.
The company’s competitive strengths that will help retain Binacom’s existing customers and gain new ones to sustain and grow business includes: i) proven and established track record, ii) quality management system, and iii) recurring revenue from O&M services
“Catalysts for business growth includes: i) improving economic conditions in Malaysia, ii) population growth, iii) technological advancements, iv) on-going capital expenditure among telcos, and v) government initiatives,” it said.
However, key downside risks among others include i) competition from other operators, ii) dependency on a few major customers, iii) majority of material business contracts are in the form of frame agreements, and iv) subject to liquidated damages claims or service level penalties.
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