HB Global’s telco venture offers better earnings prospects

by ANIS HAZIM / pic credit: ANNUAL REPORT

HB GLOBAL Ltd expansion into telecommunication could raise its profit and long-term growth as network providers gear up to deploy 5G network offerings. 

Its director Lee Ping Wei said the diversified 5G infrastructure offers good business prospects because countries, including third-world countries, are focusing on building out their 5G networks. 

“This sector will provide long-term income and stability. We don’t want any future crisis like the Covid-19 pandemic to affect our business, so we are tapping into 5G infrastructure, which will be a basic need for every country,” Lee told The Malaysian Reserve (TMR) in an interview recently. 

In April 2021, the China-based frozen food maker acquired a 60% stake in Forward Resources and Construction Sdn Bhd (FRC) for RM66 million to expand its business in construction and engineering solution services for the telecommunication industry. 

Following the acquisition, HB Global will be able to lay fibre-optic cables using robotic services, leveraging FRC’s expertise in building telco infrastructure. 

“This will provide us with a good income while also allowing us to use our talent, such as engineers, to provide the group’s value and knowledge for a better 5G infrastructure in Malaysia,” Lee said. 

HB Global has secured contracts from big telco players such as Maxis Bhd, DiGi.com Bhd, edotco Group Sdn Bhd and National DIgital Network. 

“The 5G infrastructure is almost ready because we are working with telco companies not only in the city but also in more populated areas such as Klang Valley, Penang and Johor and is aligned with Malaysian Communications and Multimedia Commission approach to 5G deployment in the country,” Lee added. 

Lee said the pandemic has prevented HB Global from developing new 5G infrastructure sites. 

“Our new site had to stop its operation due to the Movement Control Order, however, our existing sites are unaffected as they fall under essential services which require us to be on standby to support and prepare for telco services,” he noted. 

HB Global’s primary business of food processing is operating normally but at a slow pace, said Lee. 

Nevertheless, Lee foresees that the group will have positive results for the financial year 2021 (FY21). 

“We have an RM500 million contract from Maxis that will be completed in three years, and our profit after tax is expected to be between 10% and 15%. We are also confident our upcoming quarter will have positive results,” Lee said. 

HB Global also has a RM1.1 billion contract that needs to be completed in three years. 

The firm is projected to generate gross profit margins of between 30% and 40% from telecommunications-related projects. 

Rakuten Trade Research VP Thong Pak Leng wrote in a report that HB Global’s revenue could grow by 134% and 229% to RM139.8 million and RM459.8 million for financial year 2021 (FY21) and FY22, respectively, as the group is tapping the telecommunication business. 

“We forecast the company to make net earnings of RM10.6 million in FY21 and RM39.2 million for FY22 and arrive at a target price of 76 sen based on 15 times fully diluted FY22 earnings per share,” Thong noted in the report recently. 

Rakuten Trade recommended a ‘Buy’ call for HB Global, premised for its strong remaining orderbook and emergence of 5G that will boost the telecommunication sector. 

Thong noted that HB Global’s existing business of food and supply chain solutions does not provide stable income, hence, the FRC acquisition would generate recurring income and positive cashflow for the company. 

FRC comes with a profit guarantee of RM20 million in aggregate for FY21 and FY22, excluding exceptional gains. 

HB Global shares declined 2.82% to 34 sen last Friday, valuing the company RM265.65 million.