Earnings visibility, prospects bolster Reach Ten's appeal

KUALA LUMPUR: Main Market-bound Reach Ten Holdings Bhd gets its appeal from its recurring revenue streams, which provides a solid foundation for future earnings, said Malacca Securities Research. Over the period from FY21 to FPE24, a notable 87% and 93.1% of the Sarawak-based telco service provider's revenue stemmed from long-term contracts across its satellite broadband, fibre leased lines, and managed telecommunications infrastructure.

These contracts spanned durations of 12 to 60 months. In its review of the company's initial public offering (IPO), the research firm ascribed a fair value of 71 sen for Reach Ten, a 36.5% upside to its IPO price of 52 sen.



This was derived from pegging a forward price-earnings (PE) of 13x to the projected mid-FY26 earnings per share of 5.44 sen. "We believe the pegged PE is fair given the 12-month forward PE and trailing 12-month PE among its closest peers stood at 13.

3-16.5x. However, we do not rule out the possibility of the market pricing in higher multiples given its superior net margins compared to its closest peers," it said.

Malacca Securities is bullish on the company's high concentration in Sarawak - which is underpenetrated in terms of broadband coverage and fibre infrastructure - as it would benefit from the government's Jalinan Digital Negara (Jendela) mandate to provide wider coverage and better quality of broadband experience in underserved areas. It added that strong Jendela Phase 1 credentials further reinforce its pipeline visibility under Phase 2. Meanwhile, Reach Ten also benefits from Sarawak's low population density, which supports cost-efficient fibre and broadband deployment, especially in rural and semi-urban areas.

"The sparse density allows for the use of open trench excavation, which is significantly cheaper than trenchless methods required in congested city centres. "For Reach Ten, this translates into lower civil works cost per km, enabling scalable rollouts under Jendela Phase 2," said Malacca Securities. The research firm added that Reach Ten would also benefit from rising bandwidth demand driven by 4G and future 5G rollouts as it expects the company's 36 towers to be leased to multinational operators under multi-year tenancy agreements.

"The strategic placement of these rural towers supports higher tenancy ratios, while recurring lease income underpins earnings visibility, particularly as we expect MNOs to expand network coverage in underserved areas." Malacca Securities estimates that based on an assumption of 13.5% top-line growth from the FY23 base of RM182.

3mil, Reach Ten's Ebitda could expand 8.3% in FY25, rising from about 39.6% to about 40.

7%, translating to an incremental Ebitda of RM6.2mil. "Margin uplift would be driven by minimal incremental capex/opex, supported by Reach Ten’s PPE base — comprising 649km of fibre, 217km of ducts, and a teleport hub in Kuching," said the research firm.

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