We believe the 20.6% YTD correction in share prices is overdone and largely priced the expected National Single Window (NSW) earnings risks (post the expiry of its concession in Aug 2019), and potential MyCC penalty in July amid the Competition Act 2010 infringement (pending appeal). Nevertheless, we remain sanguine on DNEX’s long term prospects, driven by the growing contributions from energy segment coupled with its diversified and entrenched ICT businesses, with continued growth in trade facilitation services. Valuation is undemanding at 9.9x FY19 P/E (vs 10-year historical average 25x), supported by a resilient 7.3% earnings CAGR for FY17-20 and improving FY18-20 yields of 2.6-5.2%. Potential triangle breakout to spur prices towards RM0.425-0.45 levels.

Expect a stronger 2H18. Despite a tepid 1H18 performance, DNEX remains optimistic for a stronger 2H18, driven by expectations of higher portable container system (PCS) project installation. The group expects to install at least 30 units of PCS in 2H18 (vs. seven units in the last 12 months). Moreover, the group expects to see maiden contribution from the Touch ’n Go e-wallet network connectivity project. To recap, the group expects the project to contribute RM20m revenue/annum, with an estimated 35% net profit margin in the first three years after the project is operational.

On top of that, its 30% associate, Ping Petroleum is poised to deliver stronger earnings in FY18E, driven by higher average crude oil prices and higher sales volume, as the group announced a 20% increase in Ping’s total proven and probable oil reserves to 27m barrels (vs. 23m recorded during the acquisition in 2015).

Poised for a triangle breakout. After tumbling 20.6% YTD, DNEX has been building a base near RM0.37 in the last three months. We expect DNEX to stage a triangle breakout soon, supported by bottoming up technical. A decisive downtrend line breakout above RM0.39 will lift prices further towards RM0.40 and RM0.425 (38.2% FR), followed by the LT objective at RM0.45 (50% FR). Meanwhile, key supports are located at RM0.38 (10d SMA) and RM0.37. Cut loss at RM0.36.

Source: Hong Leong Investment Bank Research - 24 Sept 2018