Redtone is poised to benefit from potential wins from the RM4.6 billion Jendela tender, engineering and maintenance jobs from the 5G rollout, and 5G-enabled connectivity and digital services, analysts observed.
KUCHING: Redtone Digital Bhd (Redtone) is poised to benefit from potential wins from the RM4.6 billion National Digital Network Plan (Jendela) tender, engineering and maintenance jobs from the 5G rollout, and 5G-enabled connectivity and digital services, analysts observed.
In a report, the research team at Kenanga Investment Bank Bhd (Kenanga Research) opined: “Having previously won 25 to 70 per cent of large-scale government contracts, Redtone is well positioned to win some of the RM4.6 billion Jendela tender, in our view.”
It noted that Redtone has tendered for all RM4.6 billion worth of contracts in the Jendela Phase 1 tender.
Although historically, the group’s gross margin has been around 40 per cent, any large-scale project will likely bring lower gross margins, potentially around 20 per cent, Kenanga Research said.
“However, the sheer size of the large-scale projects should still bring material EPS enhancement.
“Our modelling shows that in the scenarios where Redtone wins 10/25/50/70 per cent of the contracts worth RM4.6 billion, they will have earnings per share (EPS) enhancements of 22/56/112/157 per cent from FY21 core net profit (CNP), assuming any incremental revenue is spread across five years,” it projected.
Aside from that, Redtone is Managed Telecommunication Network Services (MTNS) segment is expected to benefit from Malaysia’s 5G rollout and continue to drive growth regardless of the outcome of the Jendela tenders.
“As 5G networks require a greater number of sites, Redtone should benefit from more engineering and maintenance jobs from Malaysia’s 5G rollout, which Digital Nasional Bhd (DNB) has tasked Ericsson to do.
“We gathered that Redtone is currently in discussions with Ericsson, with whom Redtone has previously worked with to roll out 4G networks. Thus, we wouldn’t be surprised if Redtone wins jobs from Ericsson for the 5G network rollout.
“Management has also indicated that they have sufficient in-house resources to fulfil both Jendela and 5G related jobs. When the 5G network is available, Redtone’s telco services as well as its Industry Digital Services (IDS) will benefit as they can offer 5G-enabled services. The former will be able to tap on the network to offer enterprise customers 5G connectivity services, such as 5G FWA.
“The latter, which currently offers data centre and cloud, virtual reality, e-Health, and smart farming services, could also leverage on 5G’s low-latency capabilities to offer new or enhanced services,” Kenanga Research said.
All in, the research team recommended a ‘trading buy’ on the stock based on its favourable prospects.