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#Can REACHTEN's listing break the IPO curse?
#The first Sarawak company to be listed in 15 years? !

REACHTEN Holdings Berhad (REACHTEN, 5332) is about to become the first company from Sarawak to be listed on the main board in 15 years 😮 The company's business is different from the retail telecom operators such as Maxis, CelcomDigi, and UMobile that the public is familiar with. REACHTEN is a communications service provider mainly focusing on business-to-business (B2B) and government (B2G), providing "vertically integrated solutions" from network infrastructure construction to operation.

REACHTEN has two key licenses 👉 NFP (network facility supply) and NSP (network service provider); the former means that the company can build and own its own infrastructure such as optical cables, telecommunications towers, VSAT satellite stations, etc., while the latter allows it to provide network services, broadband and data lines.

With these two licenses, REACHTEN can not only "build its own network" but also "sell its own network" 🤔, thus forming an autonomous, closed-loop business ecosystem.

So far, the company has built 3 communication towers, 33 monopole towers, and up to 1,215 VSAT sites in Sarawak. VSAT is a technology that can connect to the network via satellite without wiring. It is particularly suitable for plantations, inland areas, offshore facilities and other difficult-to-cover areas. For this reason, the company plays an important role in serving remote areas and cooperating with national broadband plans such as JENDELA and SALURAN.

From the perspective of business structure, REACHTEN's revenue is extremely concentrated in VSAT-related satellite communication services. The company's total revenue for the 2023 fiscal year is RM182.3 million ❗️ Of which RM158.5 million (86.95%) comes from satellite-related services, fiber optic communications business accounts for RM20.1 million (11.03%), and telecommunications infrastructure construction and equipment leasing services account for only RM3.7 million (2.02%). B2C business is almost negligible, contributing only RM0.85 million, accounting for less than 0.5%.

From a financial performance perspective, REACHTEN's growth trajectory is very prominent. In the 2021 fiscal year, the company recorded revenue of RM86.1 million and a net profit of RM8.8 million. By the 2022 fiscal year, revenue increased to RM174.3 million and net profit soared to RM43.7 million 🚀 In the 2023 fiscal year, revenue increased slightly to RM182.3 million, and net profit recorded RM51.3 million. Revenue almost doubled in three years, and the growth was very impressive.

In terms of profit quality, REACHTEN's gross profit margin also increased simultaneously 📈 The gross profit margins from 2021 to 2023 were 22.49%, 40.25% and 46.17% respectively, indicating that its service structure is being optimized, which may reflect the high operating efficiency and bargaining space of VSAT business. There is also a considerable performance in terms of net profit margin, which is about 28.1% in fiscal year 2023.

It is worth mentioning that REACHTEN's IPO has also attracted the attention of some investment banks. According to publicly available analysis reports, TA Securities gave REACHTEN a reasonable valuation of RM0.66 per share, RHB Investment Bank gave a valuation of RM0.78, and Malacca Securities (MPlus) gave a target price of RM0.71, all of which are higher than the IPO offering price of RM0.52; all three brokerages value its stable cash flow, government project support, and the profit visibility brought by the high proportion of recurring income model.

Despite this, REACHTEN's business structure still has a clear risk profile. The company is extremely dependent on government projects and subsidies.

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