• We resume our coverage on Dagang NeXChange (DNeX) with a BUY recommendation and TP of RM1.05. The company offers a great exposure to rising semiconductor demand amidst global mega trend towards 5G technology and EV and hence, our bullish recommendation on the stock.

• We firmly believe that the company is capable to realise its plan to build a new 12-inch fab facility in Malaysia leveraging on the xfactor of its new management team.

• The stock price has corrected from recent high of RM1.33 as euphoria over high oil price and semiconductor chip shortage dissipated. Hence, we think it is attractive to accumulate on the stock at current level.

Exciting Long Term Growth Prospect

DNeX has emerged as a pure-play semiconductor player following its acquisition of 60% equity interest in SilTerra Sdn Bhd (SilTerra). The purchase was timely amidst global network migration towards 5G and growing demand for electric vehicle (EV) and data centre which would require higher amount of semiconductor content. We foresee the company to benefit from this mega trend given its long-term plan to build a new fab via a JV with Foxconn. While details remain scarce, we are optimistic that the company will be able to push ahead with its ambitious plan banking on (i) capable management team led by a prominent corporate figure i.e., Tan Sri Dato’ Sri Haji Syed Zainal Abidin Bin Syed Mohamed Tahir (Syed Zainal) as the group CEO; (ii) strong interest by Malaysian government towards developing its semiconductor ecosystem, and (iii) possible funding support from Middle Eastern investors i.e., through JV with Ajlan & Bros Holding Group.

Stable Earnings in the Near-Term

We project DNeX to achieve a steady profit of RM260-300mn over FY23-25F which is comparable to FY22 core PATAMI of RM285mn. Note that, we do not expect a significant jump in earnings until the completion of its growth projects which may take up to 3 years to materialise. We also expect minimal dividend payout from the company in the near term due to its high capital requirement as it embarks on major expansion project.

Initiate coverage on DNeX with a BUY; TP RM1.05

We resume our coverage on DNeX with a BUY recommendation and TP of RM1.05 based on sum-of-part (SOP) methodology. The stock was previously seen as a major beneficiary of semiconductor shortage and high oil price. However, as the euphoria has dissipated, the stock price has made a pullback from its 52-week high of RM1.33. Hence, we think it is attractive to accumulate the stock given its long-term growth prospect.

Source: BIMB Securities Research - 19 Oct 2022