Transforming into a global and resilient business. Starting with 3 original main clusters (System Integration & Consultancy, Trade Facilitation, and Telco), DNEX had completed its strategic investment in SilTerra and Ping Petroleum in FY21 to venture into the energy and the technology sectors. To recap, the two new divisions contributed 84% of the group revenue in 1QFY22.

Buoyant technology outlook. With semiconductors shortage showing no signs of abating, SilTerra’s wafer per mask layers (WPML) ASP surged 23% YoY from USD16.8 in 1QFY21 to USD20.8 in 1QFY22. Going into FY2022, WPML ASP is expected to stay buoyant, with a high possibility to increase by another 25% to USD25 per mask layer on the back of robust demand, which bodes well to SilTerra’s bottom line. On the other hand, the group initiative on improving productivity will drive its short-term growth prospects. Note that, SilTerra’s wafer Fabout performance has been improving from 91,045 units in 2QFY21 to a record high of 96,141 units in 1QFY22 under this initiative. Apart from its core products, DNEX will allocate ~20% of its wafer capacity to produce new emerging technology platforms such as Silicon Photonics, Life Science, and MEMS in FY23 for the application of Data Science & AI, RF Filters for 5G, and DNA Sequencing, where the ASP is 3x higher than their core products.

Anticipate a robust 2Q and beyond. To recap, with just 2 months of contribution from SilTerra, DNEX posted a core PATAMI of RM41.3m in its 1QFY22 result. Moving forward, DNEX is envisaged to register stronger QoQ results underpinned by (1) full contribution from SilTerra amid higher WPML ASP and better wafer Fabout performance; (2) higher production from Ping Petroleum; (3) trade facilitation division (via regional expansion, deeper B2B offerings and expand into non-National Single Window stakeholders); (4) submarine cable installation arising from growing regional telecommunication connectivity and (5) tapping the RM70bn digital transformation investment plan by 2025.

Range bound. Technically, DNEX is trading within its consolidation area of RM0.735- 0.865, with indicators showing uptick bias. A successful breakout above RM0.785 will lift the prices toward RM0.830-0.880 territories. Cut lost at RM0.715

Source: Hong Leong Investment Bank Research - 3 Jan 2022