• Steady earnings stream and undemanding valuations. DNEX (formerly known as TIME), was primarily an ICT provider. In 2016, the group diversified into the energy sector as its 2nd core business. Going forward, DNEX is expected to derive ~60% of its earnings from IT & e services and the remaining from energy-related businesses. Ex-cash of 3.6 sen, DNEX is currently trading at 9.6x FY18 P/E (vs 10-year historical average 20x), supported by 18.7% earnings CAGR from FY16-19 (Source: Bloomberg consensus).

• IT division. DNEX’s IT segment is anchored by the bread and butter National Single Window (NSW), which facilitates trade and customs arrangements for the private sector and the customs department. Other main sources of incomes are coming from the eWork permit system (for the rehiring of foreign workers), vehicle entry permit and road charges (VEP & RC) project for the Ministry of Transport in Malaysia etc.

• Energy division. DNEX is on track to widen its earnings base through the maiden earnings from the new acquisition of OGPC, an oil and gas services provider. Additionally, its 30% owned associate, Ping Petroleum, is expected to generate earnings from the 50% -owned Anasuria cluster. Overall, DNEX is expected to reap the benefits from the ongoing oil prices recovery. Based on Aug 2017 report, EIA forecasted average WTI 2017/2018 prices to hover at US$48.9/49.6 per barrel compared with US$43.3 in 2016.

• Poised to retest RM0.50-0.60 in the short to medium term amid bullish Harami formation in weekly chart. DNEX’s share prices corrected 33.5% from 10-year high of RM0.69 (3 May 2017) to a low of RM0.445 (11 & 14 Aug) before ending at RM0.47 last Friday. Following the formation of bullish engulfing candle in the daily chart and bullish harami pattern on the weekly chart, we expect DNEX to advance further to retest immediate resistance at RM0.50 in the short term as share prices are still maintaining its posture above the 200-d SMA (near RM0.42).

• A successful breakout above RM0.50 will spur prices further towards higher targets of RM0.55 (30-d & 100-d SMAs) and our LT objective at RM0.58 (23.6% FR). Meanwhile, key supports are RM0.46 (50%FR) and RM0.445. Cut loss at RM0.435.

Source: Hong Leong Investment Bank Research - 21 Aug 2017