• 2Q18 core profit fell 35% yoy and 55% qoq to RM7.9m on startup opex for new business. Overall, 1HFY18 core earnings of RM26m respectively trailed ours and consensus forecast at 39% and 37%.

• Higher contribution from Ping helped to boost energy segment amidst headwind in other energy subsegment.

• Maintain BUY with unchanged TP of RM0.52. We believe investors have largely overlooked DNeX’s values as we note current share price level has more than reflected its earnings risk.

Core earnings suffered from weaker Genaxis performance

2Q18 core earnings dwindled to RM7.9m as it incurred higher opex for new business. Core earnings were after adjusting for one off gain totalling RM4.3m arising from PPE disposal and reversal of trade receivable impairment. Overall, 1H18 core earnings trailed ours and consensus estimates at 39% and 37% respectively.

NSW and VEP and RC remain as IT bread and butter

On qoq basis, IT segment revenue fell 33% to RM39.6m due to slower completion rate of Genaxis’ contracts in hand. Genaxis add RM12.5m revenue in 2Q18 vs RM28.6m in 1Q18. Accordingly, the segment PBT dropped 72% to RM6.8m. Notwithstanding, the contracts from NSW, VEP and RC remains as this segment’s bread and butter businesses, providing sufficient cashflows to the company.

Energy segment yet to pick up

Revenue from the energy segment eased 2% to RM11.6m as logistical constraint delayed delivery of the portable container system (PCS) at select fisherman ports. Management had previously attributed the delay to site readiness and local authorities’ approval. Meanwhile, the contribution from Ping grew 63% yoy and 9% qoq to RM6.6m possibly on higher realised crude oil prices from the Anasuria cluster.

No change to earnings forecast

1H18 earnings came in below our forecasts at 39% higher opex incurred for new business as well as slower progress in OGPC’s PCS project. We make no change on our estimates as we expect a strong pickup in 2H18 as the company resolves the issue surrounding PCS installation.

Maintain BUY with unchanged TP at RM0.52

Maintain BUY with an unchanged SOP-derived TP of RM0.52 (see Table 3). We believe investors have largely overlooked DNeX’s values as we note current share price level has more than reflected its earnings risk. Note that we still ascribe zero value to DNeX’ ex-Ping energy segment.

Source: BIMB Securities Research - 7 Aug 2018