• Datasonic’s 3Q18 revenue fell 18% qoq and 17.6% yoy on lower earnings from personalisation services. EBITDA margin, however, grew 20bps qoq with increased contribution from passport booklet (600,000 units) – better margin product.

• The group’s 9MFY18 core earnings grew 13.9% despite lower revenue due to better cost control and lower tax expense. All in, it trailed expectations at only 54%.

• No changes to earnings as we expect 4Q18 to see more products/services ie. MyKad, MyKad consumbles and passport booklet being delivered.

• A third interim DPS of 1.0 sen (YTD: 3.0 sen) was declared.

• Maintain BUY with an RM1.45 DCF-derived TP which implies a FY18E PE of 21x before easing to 20x in FY19E.

EBITDA margin improves with higher passport booklet delivery

Datasonic’s 3Q18 revenue fell 18% qoq and 17.6% yoy underpinned by lower contribution from personalisation services (ie. MyKad) as National Registration Department (KDN) plans to manage existing inventory. Management guided for c.1m units of MyKad to be delivered to KDN in 4Q18, implying c.RM10m to PAT. Despite lower revenue, EBITDA margin grew 20bps qoq on higher delivery of the passport booklets (600,000 units) – better margin product.

No change in earnings forecast

Its 9MFY18 revenue fell 14.1% on lower supply of smart cards and personalisation services. However, core earnings rose 13.9% to RM49.9m on better cost control and lower tax expense. Overall, its 9MFY18 core earnings trailed our expectations at only 54%. We expect earnings to pick up in 4Q18 with more products/services ie. MyKad, MyKad consumbles and passport booklet being delivered.

Notable highlights from analyst briefing

Key points from the briefing were: i) it entered into an agreement (valued at RM2-3m) with Perum Percetakan Negara Republic Indonesia (PNRI) on 6 Feb 2018 for supply of 13 million cards p.a. for at least 3 years; ii) Puspakom online booking (MyPuspakom) and Queue Management System (QMS) went live on 4 Jan 2018. The contract, worth RM2m, is over 7 years (awarded on 18 Jan 2017).

Dividend declared

A third interim DPS of 1.0 sen (YTD: 3.0 sen) was declared. Our full year forecast DPS of 4.5 sen implies a dividend yield of 4.3%.

Maintain BUY with TP of RM1.45

Maintain BUY with a DCF-derived TP of RM1.45 (WACC: 5.1%, g: 0.5%) which implies FY18E PE of 21x and 20x in FY19E. We believe it is fair as its RM742.5m order book provides visibility up to FY23E.

Source: BIMB Securities Research - 1 Mar 2018