Investors would have been disappointed with the share price performance of Dagang Nexchange Bhd (DNeX) in the past year. The counter hit a 52-week high of 64 sen in March last year. It has been sliding since then, down 43.4% in the past year.

DNeX recently touched a year low of 32 sen, especially after posting below expected results. The company fell into losses with headline loss after tax and minority interests of RM14.6 million in 6Q23.

It was dragged by larger losses at Silterra, which posted its fifth consecutive quarterly loss with a loss before tax of RM31 million. DNeX also saw weaker performance in IT e-Services segment. Silterra’s revenue declined 8% quarter-on-quarter and 12% year-on-year to RM145 million on lower wafer shipments.

Meanwhile, the IT e-Services revenue was weaker at RM41 million due to lower revenue from Subsea Telco business. This was mainly due to the maintenance activities of the subsea cable laying vessel.

Meanwhile, energy segment remained the main earnings contributor to DNeX with pre-tax profit of RM20.2 million. But analysts are pretty bullish on the company with a buy call.

This is due to long-term outlook, which is set to ride on strong demand growth in semiconductor industry, leveraging on the potential new fab plant deal with Foxconn. Apart from that, analysts are also excited about the potential benefit from the joint venture with Ajlan Bros for Neon smart city project in Saudi Arabia.

In addition, the launching of new enterprise resource planning (ERP) products targeting government agencies and SMEs will translate into better earnings for DNeX.

Last but not least, the development of Meranti oil field and reactivation of Abu Cluster hold much optimism with first oil targeted in FY24. The longer term outlook may look bright for DNeX but its return on capital employed (ROCE) tells us another story. Its ROCE trend, which has fallen from 10% five years ago, does not look good while the business's capital employed increased by 710%.

However, some of the increase in capital employed could be attributed to the recent capital raising that's been completed prior to their latest reporting period. It is rather worrisome that returns on capital and sales for DNeX have fallen, meanwhile the business is employing more capital than it was five years ago.

Despite the concerning underlying trends, the stock has actually gained 22% over the last five years. This could be the investors are expecting the trends to reverse.