Dagang NeXchange has won a sub-contract to provide e-wallet service which may provide decent earnings over the next three years. Meanwhile, its energy segment may grow in tandem with the steadier crude oil outlook. We think the recent selldown could serve as an opportunity to accumulate, capturing the upside potential (RM0.425-0.465) over the near term. On the flip side, the support will be anchored around RM0.36-0.37. Cut-loss will be at RM0.34.

ICT provider which diversified into energy segment in 2016. Dagang NeXchange Berhad (DNEX), formerly known as TIME, was primarily an ICT provider for National Single Window (NSW), which facilitates trade and customs arrangements for the private sector and the customs department. Also, the group diversified into the energy sector in 2014 via the acquisition of OGPC as its second core business and managed to widen its earnings base through this oil & gas services provider.

Tapping the e-wallet trend with the Touch n’ Go contract. DNEX announced on 4th of May that its 51%-owned subsidiary, DNeX RFID, has won a sub-contract to provide a Touch n’ Go e-wallet service for local and foreign vehicles entering the country. DNEX mentioned the project could generate an annual revenue ranging from RM19m- 21m, with an estimated project margin of 35% in the first three years.

Beneficiary of the firmer Brent oil prices. Also, DNEX has ventured into energy business via the acquisition of OGPC, an equipment provider for O&G industries covering the whole chain from upstream to downstream in 2014. Subsequently in 2015, DNEX invested in 30% stake of Ping Petroleum, an E&P company at its early stage with 50% stake in the Anasuria Cluster, North Sea which is jointly-owned with Hibiscus Petroleum. This mature oilfield is now cash flow positive while providing further income for DNEX at associate level.

Energy division likely to pick up further in 1Q2018. From Figure #3, since the start of 2017, the quarterly PBT of the energy division has been tracking the trend of Brent oil prices. Hence, with the firmer recovery in the Brent oil prices over the past two quarters, coupled with the steadier crude oil outlook, investors could anticipate that the upcoming reporting season may generate better PBT for the energy segment, resulting in stronger bottom line on the QoQ and YoY basis.

Trendline breakout after recover from a knee-jerk selldown. After a steep selldown two days ago towards the RM0.305 level, DNEX managed to rebound higher above RM0.34, forming a bullish candle on Monday. Buying support emerged further yesterday and price crossed above SMA20. With both the RSI and Stochastics on a recovery trend above 50, we believe DNEX may retest the RM0.425-0.465 levels, followed by a LT target at RM0.48. Support will be located around RM0.36-0.37, with a cut-loss point set around RM0.34.

Source: Hong Leong Investment Bank Research - 16 May 2018