CEO Morning Brief

Contract Renewals Boost Datasonic's Prospects, Say Analysts

edgeinvest
Publish date: Wed, 22 Jan 2025, 10:33 AM
edgeinvest
0 28,266
TheEdge CEO Morning Brief

KUALA LUMPUR (Jan 21): Datasonic Group Bhd's (KL:DSONIC) one-year extensions for passport supply and biodata page contracts have come within expectations, but the company's share price has been weighed down by the absence of long-term contract extensions.

"The current share price overhang from the absence of long-term contract extensions for both of Datasonic’s MyKad and passport-related solutions should ease with yet another contract extension being secured," said RHB Research in a note on Tuesday.

RHB has taken a more cautious approach, revising its target price for the stock to 61 sen from 68 sen previously, reflecting a roll-forward valuation to the financial year ending March 31, 2026 (FY2026), based on 20 times price-earnings ratio.

Shares of Datasonic, which have declined by 3.57% year-to-date, were trading at 40 sen at the time of writing on Tuesday, translating into a market capitalisation of RM1.1 billion, with around two million shares changing hands.

Moving forward, as Datasonic eyes more overseas projects, analysts from RHB are also anticipating the firm to look into more auto gate and information technology-related jobs locally.

All four research houses covering the stock have 'buy' recommendations. According to the Bloomberg consensus, the average 12-month target price stands at 62 sens, representing a 51.2% upside from the current share price.

In a separate note, BIMB Securities flagged the absence of a letter of extension for passport chip supply, typically granted alongside such renewals.

The house remains confident in Datasonic’s ability to secure further contracts, citing the firm’s proven track record and its long-standing relationship with key government agencies.

Thus, BIMB maintained its 'buy' call on the stock, with a target price of 63 sen.

However, the analysts warned of potential downside risks to their call, including higher input costs, weaker-than-expected order volumes, potential non-renewal of contracts, and changes in government policies.

Datasonic had on Monday received one-year extensions for its contracts to supply Malaysian passports and polycarbonate biodata pages to the Immigration Department of Malaysia.

The extensions came with additional contract ceilings of RM57.15 million for the passport supply contract, and RM93.3 million for the polycarbonate biodata pages supply contract.

The extensions for both contracts are effective from Dec 1, 2024 to Nov 30, 2025. These are the contracts' fourth extensions awarded by the Home Ministry.

Source: TheEdge - 22 Jan 2025

Related Stocks
Market Buzz
Discussions
Be the first to like this. Showing 0 of 0 comments

Post a Comment