• 1Q19 earnings fell 50% yoy and 57% qoq to RM7.5m on lower smart card delivery; this made up only 9% of our FY19F.

• Management guided for smart card delivery to resume in coming quarters which we estimate would be worth RM65m in revenues.

• No changes to our forecast as we expect earnings to respite in coming quarters as smart card and passport delivery normalises.

• Maintain BUY with DCF-derived TP of RM1.20 as we remain positive following the installation of eGates and plant expansion to meet overseas demand.

A timing issue

Datasonic’s 1Q19 earnings fell 50% yoy and 57% qoq to RM7.5m in tandem with lower smart card delivery as the government draws down on existing inventory. Management guided that the delivery of 3 million smart cards would resume in coming quarters, translating to c.RM65m of revenues in FY19.

No change to estimates

Overall, Datasonic 1Q19 earnings trailed our expectation at only 9% of FY19F. No change to estimates as we expect some earnings respite in coming quarters as smart card delivery and passport normalises.

Outlook remains positive

In a recent analyst briefing, management guided that it would receive c.RM15m over 5 years for the rental and maintenance fees of eGates in KLIA. At end 2018, 20 units of eGates would have been installed while the remaining 100 units to be installed nationwide in 2019. This augurs well for Datasonic’s FY19/20 earnings.

Structural growth from new expansion

Management has earmarked capex worth RM16.8m for its factory in Klang for the manufacturing of the National ID (NID) smart card, EMV cards and other Secure ID cards. The expansion is expected to complete by end Dec 2018. This would boost production capacity for NID to 1 million cards/month and for EMV cards and other Secure ID to 2 million cards/month. The expansion is for overseas ie. Indonesia and Africa demand.

Maintain BUY with TP of RM1.20

BUY with a DCF-derived TP of RM1.20 (WACC: 5.1%, g: 0.5%). Our TP implies FY19E PE of 20.2x and 18.2x in FY20E. The disappointing results may see downward pressure to its share price. Accumulate on dips as we remain positive on Datasonic’s outlook. Currently, its outstanding orderbook stands at c.RM885m, providing earnings visibility of up to FY23F.

Source: BIMB Securities Research - 27 Aug 2018