• 1Q19 core PATAMI declined 32% to RM12m mainly due to lower margin from IT segment.

• Overall, 1Q19 core EBITDA of RM13.7m was largely inline with our estimate at 23% while core PATAMI lagged our estimate at 18% mainly on us falling short in associate contribution.

• On qoq basis, core PATAMI more than double on the back of higher contribution from Ping and lower effective tax rate.

• We maintain our FY19F earnings forecast as we expect earnings respite from Ping’s two new wells drilled in 2019.

• We maintain our HOLD recommendation on the stock with lower SOP-derived RM0.26 TP (from RM0.29). While earnings growth from new acquisition has been weak, we continue to be optimistic with Ping’s prospect and the company’s plan to monetise the asset.

Dragged by IT segment

1Q19 core PATAMI declined 32% yoy to RM12m (1Q18: RM17.7m) mainly on lower margin in IT segment. The IT segment’s profit margin fell to 18.4% (1Q18: 42.7%) due to higher cost incurred for submarine cable installation and repair project in Indonesia in 1Q19. A one-off gain from reversal of overprovision to one of Genaxis’ project cost estimated worth RM10m also aided to higher margin in 1Q18. Overall, 1Q19 core EBITDA of RM13.7m (-55% yoy) was inline with our estimates at 23% but core PATAMI trailed at 18% mainly due to associate contribution falling short.

Improved QoQ on Ping and lower effective tax rate

On qoq basis, core PATAMI grew more than 100% (4Q18: RM1m) underpinned by oil sales contribution from Ping and lower effective tax rate. Recall that there was no oil sale recognized by Ping in 4Q18 as the planned shipment was delayed to 1Q19. The energy ex-Ping segment remains in the red with RM0.6m loss before tax as the market condition remain challenging for DNeX Oilfield and OGPC.

No change to FY19F earnings forecast

We made no change to our FY19F forecast as we expect earnings respite from Ping in 2H2019. The company recently sanctioned a 2 well drilling programme involving a Guillemot-A side-track well at Anasuria cluster and a development well at Avalon field.

Maintain HOLD with lower TP RM0.26

We maintain our HOLD recommendation on DNeX with lower SOPderived RM0.26 TP (from RM0.29) taking into account the latest audited FY18 account (see Table 3). While earnings growth from new acquisition has been weak, we continue to be optimistic with Ping’s prospect and the company’s plan to monetise the asset.

Source: BIMB Securities Research - 23 May 2019