• Overview. DSONIC’s 3QFY22 core profit soared by more than 200% yoy and 55% qoq to RM1.5m on higher contribution from passport segment. The strong improvement in core profit was also backed by better margin product from passport which saw EBITDA margin expanded 589bps yoy and 221bps qoq to 17.8%.

• Against estimates: Below. Despite reporting a strong earnings improvement in 3QFY22, DSONIC’s 9MFY22 core profit fell in red at –RM3.1m, dragged by weak 1QFY22 financial performance primarily on zero contribution from MyKad segment as DSONIC’s contract to supply MyKad-related products to the National Registration Department (NRD) expired in Dec 2020 coupled with lower contribution from passport segment. We revised down our FY22’s earnings estimate by 47% as we lower down passport segment contribution for the year. Still, we make no change to our FY23/24 earnings forecast as we believe the full reopening of borders in 2Q 2022 and more adoption of travel relaxation rules worldwide would boost the demand for passports and provide strong earnings growth to the company.

• Dividend. A third interim DPS of 0.125 sen was declared in 3QFY22 (3QFY21: 0.25 sen), implying a dividend payout of 241%. This brings a total 9MFY22 DPS of 0.35 sen (9MFY21: 1.00 sen).

• Outlook. Despite 9QFY22 core profit trailing our estimate, we remain upbeat on DSONIC’s business prospects and expect strong earnings recovery in 4QFY22 subsequent to pent-up demand for passport-related products over continuous relaxation travel rules implemented worldwide, including quarantine-free travel in Malaysia as well as the resumption of supply of MyKad-related products to NRD following award of new contract on 10 Feb 2022.

• Our call. Maintain BUY at TP of RM1.05, pegged at 37x PER on FY23 EPS of 2.8 sen.

Source: BIMB Securities Research - 1 Mar 2022