• 4Q18 core PATAMI dwindled to just RM1m mainly due to weak associate contribution and higher effective tax rate.

• Overall, FY18 core EBITDA of RM67m was largely inline with our estimate at 97% while core PATAMI lagged our estimate at 67% mainly on us falling short in associate contribution.

• On qoq basis, core EBITDA improved 42% to RM18m on the back of higher revenue from IT segment and narrower loss in energy ex-Ping segment.

• Proposed a final DPS of 0.5sen, implying a payout of 25%.

• Maintain HOLD recommendation on the stock with unchanged to RM0.29. We see lack of earnings catalyst from its expansion plans and this would likely weigh on its stock price.

Dragged by lower associate contribution and higher tax rate

4Q18 core earnings declined dwindled to RM1m mainly on missing contribution from associate company and higher effective tax of 65% (4Q17: 30%). Associate contribution fell as Ping deferred one oil cargo to mid Jan 2019. Overall, 2018 core EBITDA of RM64.5m (+23% yoy) was inline with our estimates at 97% but core PATAMI trailed at 67% mainly due to associate contribution falling short.

Better quarterly performance

On qoq basis, core EBITDA grew 88% to RM18m on higher IT segment revenues and narrowing losses in the energy ex-Ping segment. The higher IT revenue (+76% qoq) to RM91m (3Q18: RM52m) was due to: (i) higher revenue from Genaxis and submarine cable installation and repair (DNeX Telco) and (ii) new revenue stream from system integration business. On the energy ex-Ping segment, losses narrowed to RM0.1m (3Q18: RM5.4m) as the company multiplied its effort in delivering PCS to the site.

Proposed final DPS of 0.5sen

A final DPS of 0.5sen was proposed. This is similar to 2017 and implies a payout of 25%.

Retain our HOLD recommendation at TP RM0.29

We maintain our HOLD recommendation on DNeX with an unchanged SOP-derived RM0.29 TP. The stock lacks earnings catalyst, in our view, and this is likely to weigh on stock prices.

Source: BIMB Securities Research - 28 Feb 2019