• DNeX was awarded a 1-year contract worth RM60m for GFMAS system maintenance. This is on top of the GFMAS development contract worth RM151m received in Feb 2018.
• We view this development positively as it could provide DNeX the platform to enter other government-related tech services. We raise our earnings forecast for FY18F/19F/20F by 6%/4%/3% respectively.
• While we retain our BUY call on DNeX, we lowered our SOP derived TP to RM0.48 as we assume a lower P/E multiple of 14x (from 20x), in tandem with the de-rating of other government related e-Services companies.
• Recent share price weakness offers a good buying opportunity, in our view, as we believe DNeX the GFMAS project could be a beachhead for other government-related projects.

Awarded GFMAS maintenance contract

DNeX’s Innovation Associates Consulting SB (IAC) in which it has a 30% effective stake via Genaxis Group Bhd (Chart 1) secured maintenance service contract worth RM59.4m for the Government Financial and Management Accounting System (GFMAS). The contract expires on 9 Aug 2019 and was awarded by the Accountant General’s Department.

Accruing gains from GFMAS

GFMAS is an accrual accounting shared services system used by the Federal government to replace its existing cash-basis accounting system. The previous ruling government extended IAC’s contract to develop and implement GFMAS for 3.5 years from Feb 2018 until Aug 2021 worth RM151.4m. In total, contracts relating to GFMAS amount to RM210.8m.

A beachhead for other government-related e-services

We view the contract award positively as it affirms the potential earnings contribution of Genaxis and IAC; both firms were acquired in early 2018. This project could also offer a beachhead for DNeX to diversity its e-government services to Putrajaya. We estimate the maintenance contract would raise IAC’s orderbook to c.RM160m (incl. remaining c.RM100m from the previous contract). This raises our FY18F/19F/20F earnings forecast by 6%/4%/3% respectively.

Maintain BUY with lower TP at RM0.48

Maintain BUY with lower SOP-derived TP of RM0.48 (Table 2) as we ascribe lower P/E multiple of 14x (from 20x) to its IT segment. This is in tandem with the de-rating of other companies involved in offering e-service solutions to the government. Notwithstanding, we think the recent share price weakness presents a good buying opportunity as we believe DNeX’s values have been largely overlooked.

Source: BIMB Securities Research - 29 Oct 2018