Dagang NeXChange Berhad (DNeX) managed to turn to black in 4Q23 with PATAMI of RM48.6mn in the absence of large one-off expenses from recognition of deferred tax liability on UK Energy Profit Levy of RM232mn in 3Q23. However, there was no significant earnings respite from Silterra as it remains in the red with loss before tax of RM27.7mn. Overall, 12MFY23 core PBT of RM179.1mn was below our expectation at only 37% of our 18-month FYE2023 estimate. We cut our FY23F/24F/25F earnings by 40.3%/44.6%/5.6% as we become more conservative in our forecast. Nonetheless, we remain sanguine on its long-term outlook as it set to ride on strong demand growth in semiconductor leveraging on the potential new fab plant deal with Foxconn. Maintain DNeX as a BUY with a lower TP of RM0.58 (from RM0.73).

• Below expectation. 12M23 core PBT of RM179.1mn was below our expectation, making up 37% of 18-months FY23 estimates.

• QoQ. Revenue was largely flattish at RM275mn as there was no significant improvement in Silterra’s revenue at RM128mn. Ping’s revenue declined 11.6% to RM91.7mn due to lower oil sales volume at 192.9k bbls (3QFY23: 202.7k bbls). However, this was offset by higher revenue from IT segment at RM55.3mn (+24% QoQ) driven by (i) higher revenue from progress completion of telco cable works, and (ii) higher revenue from Mecca Route project in trade facilitation segment. At the bottomline, core PBT declined 43.7% to RM11.2mn mainly due to higher depreciation charges.

• YoY. 4Q23 revenue declined 36% mainly due to lower revenue from Silterra amidst soft end-market demand. This had dragged 12MFY23 revenue to decline by 9.4% to RM1.3bn. Similarly, core PBT fell by RM169mn or 48.6% YoY to RM179mn. Notably, Silterra only managed to achieve PBT of RM6mn (12MFY22 PBT: RM225mn).

• Earnings forecast. We cut our FY23F/FY24F/FY25F earnings forecast by 40.3%/44.6%/5.6% (see Table 4) as we are taking a more conservative outlook on the recovery of semicon demand.

• Outlook. Despite near term headwinds, we remain optimistic on its long term growth prospect. Besides working towards finalising its new fab plant deal with Foxconn, the company is also eyeing growth 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 RM0.58 (from RM0.73) which implies 12x FY24F P/E. Our valuation is based on SOP methodology ((Table 3). We think it remains attractive to accumulate the stock given its long-term growth prospect.

Source: BIMB Securities Research - 29 Aug 2023