SMRT’s Philippines venture a positive step

PETALING JAYA: SMRT Holdings Bhd’s foray into the Philippines to deploy managed automated teller machine (ATM) infrastructure solutions positions it to capitalise on the growing number of ATMs in the region.

Hong Leong Investment Bank (HLIB) Research said the venture could be a stepping-stone for SMRT to establish a track record in the Philippines and subsequently expand into its core utility sector.

On Monday, SMRT was awarded a project by Pito AxM Platform Inc (Papi) to deploy its managed ATM infrastructure solution in the Philippines.

The project duration spans three years for each designated site by Papi, starting from the installation date at each respective site. HLIB Research said it is positive as the venture will provide a new income stream for the company.

“This marks the group’s first foray into the Philippines financial services market, positioning it strategically to capitalise on the growing number of ATMs in the region.

“Notably, Papi owns approximately 3,000 ATMs in the Philippines and the deployment process will begin immediately.

“We understand that Papi’s ATMs are currently experiencing poor network uptime, which is why SMRT’s services are being employed,” the research firm said in a report.

It noted that SMRT has a proven track record in serving the ATMI Group, which is also a subsidiary of Seven Bank Ltd as in the case of Papi.

“The scope of work for this project will mirror that of ATMI’s. Overall, for the financial services sector, SMRT will bear the capital expenditure for the wireless infrastructure, thus retaining ownership of the assets. This model allows SMRT to create strong stickiness for its customers,” HLIB Research added.

The research firm believes SMRT is likely to expand into its utility sector later. It said a similar approach was successfully executed in the Indonesia market, where SMRT secured PLN as a client five years after initially contracting with ATMI.

According to the research firm, there is demand for SMRT’s Internet of Things solution in the Philippines utility sector, which faces similar challenges to those encountered in Indonesia.

“However, unlike Malaysia and Indonesia, where state-owned entities dominate, the Philippines features a multitude of privately-owned utility companies.

“For a start, the group will target smaller-scale utility companies and aims to gradually enter the larger utility market by leveraging on its proven track record.”

It maintained a “buy” call on the stock with a RM1.38 target price, ascribing a price-earnings (PE) multiple of 20 times pegged to financial year 2025 (FY25) forecast earnings.

“Considering the substantial earnings potential arising from the utilities and financial services sectors and the growing recurring earnings base, we find SMRT’s current FY25 forward PE of 13.2 times to be undemanding, making it a compelling case.

“The proliferation of managed site post site deployment will lead to a steady growth in its recurring income base,” added HLIB Research.