• Overview. Dagang NeXChange Berhad (DNeX) core PBT surged by more than double YoY to RM81mn in 1Q23 mainly driven by higher income from Silterra. On a QoQ basis, core PBT declined by 42% due to (i) lower wafer shipment to long term agreement (LTA) customer amidst weaker end-product demand, (ii) lower oil sales volume of  143k bbls (4Q22: 163k bbls), (iii) lower average oil price of  USD97.1/bbl (4Q22: USD117.2/bbl) and (iv) lower activities in subsea telco service amidst drydocking of the cable lay vessel.

• Key highlights. Despite lower wafer shipment, Silterra’s revenue rose  8% QoQ to RM275mn due to weaker Ringgit against US dollar and higher average selling price (ASP) due to better product mix with emerging technology.

• Against estimates: Inline. The 3M23 core PBT of RM81mn is in line with our and consensus’ expectation, accounting 23% and 21% of our full year estimates respectively.

• Balance sheet. The company’s financial position remained sturdy with a net cash balance of RM463mn or RM0.15/share.

• New LTA client. Silterra has managed to secure a new LTA client for its emerging Silicone Photonic (SiPh) technology which will further improve its ASP.

• Outlook. Silterra is expected to enjoy higher ASP in coming quarter due to improving product mix, notwithstanding weaker demand with  a 1-month delay in wafer deliveries. However, it is expected to improve in 2H23 as clients are expected to resume their re-stocking  activities. Overall, Silterra’s operational turnaround remains largely intact.

• Our call. Maintain our BUY call on DNeX with unchanged TP of  RM0.77. We think it is attractive to accumulate the stock given its long-term growth prospect.

Source: BIMB Securities Research - 28 Nov 2022