• 4QFY18 revenue fell 30.2% yoy to RM65m on lower delivery of personalisation services and passports. However, the impact was partially offset by lower opex and effective tax rate.

• Overall, FY18 core earnings eased by only 1.2% yoy and fell short at only 77% of our estimates due to the shortfall in MyKad and passport deliveries.

• We cut FY19F/FY20F/FY21F forecasts by 20.9%/11.4%/2.9% on assumption of lower MyKad and passport deliveries and at lower rates given the PH government’s more prudent policy undertone.

• Maintain BUY with lower DCF-derived TP of RM1.20 that implies FY19F PE of 20.2x before easing to 18.2x in FY20F.

Earnings upset mitigated by lower opex

Datasonic’s 4QFY18 revenue declined 30.2% yoy to RM65m on lower delivery of personalisation services and passports. However, these were partially cushioned by lower net opex and effective tax rate which saw core earnings easing by only 1.5% yoy to RM17m. EBITDA margin notably expanded by 976bps to 37.5%.

Sequential improvement

On qoq basis, revenue grew 7.2% on higher MyKad deliveries which are better margin products. This led to a 15% EBITDA growth and margin expansion. We believe EBITDA growth was also due to backlog delivery of orders from the prior quarter. Overall, core earnings grew by 18.6%.

FY18 below expectation

Its FY18 revenue fell 18.8% to RM258.6m as product deliveries came short of our expectations. Overall, core earnings eased by 0.8% to RM65.0m and made up only 77% of our FY18F estimates.

Revisiting our forecast

We cut our FY19F/FY20F/FY21F earnings by 20.9%/11.4%/2.9% as we pare down our expectations of product deliveries over these periods. Management noted that the National Registration Department (KDN) would be drawing down on existing inventory before new orders are made. Also, with the PH government taking a more prudent approach in expenditures and intends to break monopolistic businesses, we believe tenders of existing contracts could be carried out for the entry of new players.

Maintain BUY with TP of RM1.20

We retain our BUY call with a lower DCF-derived TP of RM1.20 (from RM1.45) (WACC: 5.1%, g: 0.5%). Our TP implies FY19E PE of 20.2x and 18.2x in FY20E. We believe this is fair as its c.RM700m order book provides visibility of up to FY23F.

Source: BIMB Securities Research - 1 Jun 2018