First IPO for the year a hit with investors

PETALING JAYA: The country’s first initial public offering (IPO) for the year, Binasat Communications Berhad made a strong debut, closing 28% higher than its issue price of 46 sen.

The provider of telecommunication supporting services for satellite; mobile and fibre optic telecommunications networks, started trading on the ACE Market of Bursa Malaysia yesterday at 60 sen some 14 sen higher than its issue price. It closed the day at 59 sen with some 72.6 million shares changing hands. The stock, however, was not among the top most active counters for the day, a departure from the norm for IPOs.

“Today marks the realisation of hours and months of hard work invested by our dedicated management team and diligent staff as well as the guidance and support of our adviser and relevant authorities towards making this IPO a success,” managing director Na Boon Aik said in a statement.

Rakuten Trade has a “buy” call on Binasat with a target price of 65 sen, which is 13 times price-to-earnings ratio as per FBM KLCI Small Cap Index. It is expected to outperform the FBM KLCI Index by more than 10% over the next six to 12 months period. Year-to-date the index has gained 1.83%.

Rakuten Trade likes the recurring income from Binasat’s operation and maintenance services, which accounts for 48% of total revenue providing sustainable and stable earnings visibility. It opined that revenue has been growing steadily for the past four years and is anticipated to remain robust with double-digit growth and earnings per share growth 12.8% FY18 and 13.6% for FY19.

Binasat’s two major clients are Maxis (12 years) and Huawei (six years), contributing a combined 75% to their revenue.

Rakuten Trade noted that while the company’s dependence on two clients does bring with it concentration risks, its 13 year track record of serving customers in the information technology industry, including all major telcos in Malaysia (direct and indirectly through equipment suppliers), should provide support.