Smart city IoT as a specialty, with new initiatives on the horizon. TRON is a company focusing on developing smart cities using the Internet of Things (IoT) to ensure operational efficiency and excellence. Its flagship product, TKDN Advance Mobility Fleet (TAM Fleet), has been used by public bus operators in 13 cities in Indonesia. The product is bundled with an array of services, including a software-as-a-service (SaaS) platform that enables bus operators to monitor and pinpoint the most effective routes and reduce the risk of accidents. For information, TRON booked revenue of IDR 68 billion from its TAM Fleet product and IDR 39 billion from SaaS in FY22. This year, TRON is spreading its wings by venturing into intelligent traffic, parking, and port management; the company has signed an agreement to build a port management system in East Africa, which we believe can bolster its overall FY23F top-line to IDR 230 billion (+114% yoy) with a GPM of 26.9% GPM and an EBITDA margin of 25.2%.

Huge market to digest. At the moment, IoT is still relatively nascent in Indonesia; however, we believe that the industry will be a surprise contributor to internet GMV in the future. PwC & Nielsen has stated that the size of the Indonesian IoT market is projected to reach USD 12.24 billion in 2023, and this number will continue to grow at a 5-year CAGR of 14.98% to USD 24.6 billion in 2028. If we zoom in and look only at smart city IoT, in which TRON currently operates, the market size is projected to reach USD 960 million in FY23F and USD 1.8 billion in FY28F, reflecting a 5-year CAGR of 13.45%. We believe that with its new venture in port, parking, and intelligent traffic management system (ITCS), plus its close relationship with municipal and provincial governments, TRON can capture this market and be the market leader in the smart city IoT sector.

Strong financials to back up its growth. Going forward, we project TRON to book an EBITDA of IDR 58 billion in FY23F, reflecting an EBITDA margin of 25.2%. We believe that the number is achievable, given the size of the market and its capability to secure new contracts with other operators whilst maintaining its current clientele. We also project TRON to book a bottom line of IDR 34 billion in FY23F (EPS growth: +117% yoy)  and IDR 59 billion in FY24F (EPS growth: +75% yoy), supported by its East Africa project. Also, TRON has low gearing with high returns, as reflected by its FY23F net gearing ratio (-0.2x) and ROAA (18%). However, TRON currently has long CCC (121 days), though we think this figure will be reduced throughout the years as TRON diversifies its clientele base to the private sector.

BUY, TP IDR 550. We initiate our coverage on TRON with a BUY recommendation and a DCF-based TP of IDR 550, implying an FY24F P/E of 27.1x (44% discount to global and regional peers). Risks: Relatively high turnover ratios, execution risk.