Dagang NeXChange Berhad (DNeX) 3Q23 core PBT plunged by 70% QoQ and 82% YoY to RM20mn as Silterra was in the red for second consecutive quarter. The company suffered from lower shipment volumes amidst global semicon inventory adjustment. Overall, 9M23 result was below both our and consensus expectation at 49% and 56% respectively. Notwithstanding that, management are optimistic that this will be reversed in 4Q23 in expectation of higher loading volumes from its long-term agreement (LTA) clients. We are also sanguine on its outlook as it poised to be one of the beneficiaries of elevated geopolitical tension i.e., from the shifting of global semicon supply chain away from China. Maintain DNeX as a BUY with a lower TP of RM0.73 (from RM0.77).

• Below expectation. 9M23 core PBT of RM168mn was below both our and consensus expectation at 49% and 56% of full year estimates respectively.

• Dividend. No dividend was declared as expected.

• QoQ. Revenue declined by 16% to RM276mn due to lower revenue from all business segments. Consequently, core PBT declined by 70% to RM20mn which excludes a one-off impairment charges of submarine cable laying vessel owned by DNeX Telco that is worth RM23.3mn.

• YoY. Revenue and PBT dropped 28% and 82% respectively mainly dragged by Silterra’s performance. Its revenue was almost halved to RM129mn no thanks to weaker semicon demand. Its PBT was in the red of RM28mn.

• YTD. 9M23 revenue inched higher by 2% to RM1.03bn as energy revenue grew by 21% on the back of higher O&G prices. This had more than offset the weakness in technology segment. However, core PBT still declined or by 19% to RM168mn due to weakness in Silterra.

• Earnings forecast. We cut our FY23F/FY24F earnings forecast by 30%/27% as we are taking a more conservative outlook on the recovery of semicon demand.

• Outlook. Despite disappointing result, we expect DNeX to turn to black in 4Q23 as LTA clients are fulfilling its committed delivery volumes under the LTA agreement. Besides working towards finalising its new fab plant deal with Foxconn, the company is also eyeing growth in via (i) JV with Ajlan Bros for Neon smart city project in Saudi Arabia, (ii) launching of new ERP products targeting government agencies and SMEs and (iii) development of Meranti oil field with first oil targeted in FY24. This is not in our forecast yet pending further clarity from the management.

• Our call. Maintain our BUY call on DNeX with lower TP of RM0.73 (from RM0.77). We think it is attractive to accumulate the stock given its long-term growth prospect.

Source: BIMB Securities Research - 30 May 2023