• DNeX 4Q17 core profit grew 47% qoq and 62% yoy mainly due to the energy segment. Overall, FY17 core earnings increased 35% to RM51.8m, inline with our estimates but trailed consensus at 90%.

• IT services sales declined by 19% yoy due to the absence of one-off project for JKR in 4QFY16 as well as recognition of smaller and last portion of VEP and RC capex project.

• The partial delivery of PCS system had improved energy ex-Ping performance and narrowed down its LBT to only RM0.2m

• We maintain our BUY call with unchanged TP of RM0.52. We like the company for its growth potential as it actively pursues various merger and acquisition activities.

Core earnings growth remained intact

DNeX’s 4Q17 headline PATAMI fell 53% yoy to RM14.7m mainly due to large drop in associate contribution (Ping). However, excluding Ping’s one-off tax credit charge of RM23.5m in 4QFY16 and other one-off items, core earnings increased by 62%, driving FY17 core earnings to RM51.8m (+35%). Overall, FY17 core earnings were inline with our estimates at 99% but trailed consensus at 90%.

Energy segment improved

On quarterly basis, revenue from energy segment improved by 63% to RM19.9m (3QFY17: RM12.2m) mainly due to maiden contribution from implementation of the portable container system (PCS) at select fisherman ports. This helped to narrow down the loss before tax of its energy ex-Ping businesses to RM0.2m (3QFY17 LBT: RM3.8m). Higher crude oil prices also had more than double the contribution from Ping to RM9.2m (3QFY17: RM4.5m).

IT segment slipped

DNeX’s IT segment PBT slipped by 7% as it recognised the smaller and last portion of VEP and RC capex amounting to RM8.5m (4QFY16: RM17m) amidst the absence of one-off system integrated project amounting to RM7m provided for Jabatan Kerja Raya (JKR). Overall, we think its trade facilitation business through National Single Window (NSW) service will continue to be the bread and butter of the segment as its contract was extended for another 11 months until 31st August 2019.

Maintain BUY call with unchanged TP at RM0.52

We maintain our BUY call on the stock with unchanged TP of RM0.52, derived using SOP methodology. We like the company for its growth potential through various M&A exercise.

Source: BIMB Securities Research - 28 Feb 2018