DNeX’s 2QFY22 core PATAMI of RM62.5m (+107% QoQ) and 1HFY22 core PATAMI of RM92.7m came in above expectations at 60% of our full-year forecasts and 58% of consensus. We strongly believe DNeX should register uninterrupted back-to-back quarterly earnings growth over the next 6-9 months on the back of: (i) Silterra’s surging product ASPs, (ii) increasing wafer shipments; and (iii) soaring crude oil prices. We highlight that DNeX would be a major direct beneficiary of higher oil prices amidst the Ukriane-Russia conflict via its oil-producing assets in 90%-owned Ping Petroleum. Maintain BUY with a higher SOP-based TP of RM1.64 (from RM1.35).

Above expectations. DNeX’s 2QFY22 core PATAMI of RM62.5m (+107% QoQ) and 1HFY22 core PATAMI of RM92.7m (having adjusted for RM264.5m gain from the acquisition of Silterra, RM11.4m impairment loss on receivables and RM8.4m on forex losses) came in above expectations at 60% of our full-year forecasts and 58% of consensus. Key variance against our forecasts was attributed to higher than expected realised crude oil price and net ASP per wafer throughout 2QFY22.

Dividends. A single interim dividend of 0.6 sen/share was declared (ex-date and payment date will be announced at a later date). The dividend came as a positive surprise.

QoQ. Revenue was up by 30% QoQ while core profit doubled on the back of higher net ASP/wafer of USD527 in 2QFY22 (vs. net ASP/wafer of USD488 in 1QFY22).

YoY. No meaningful comparison as the group has an entirely different management team along with the acquisitions of new assets (i.e. 60% of SilTerra on 26 July 2021 and an additional 60% of Ping Petroleum on 30 June 2021) – of which profits would only be reflected in FY22 onwards.

YTD. No meaningful comparison as well due to similar reasons mentioned above.

Outlook. We are convicted that DNeX should register uninterrupted back-to-back quarterly earnings growth over the next few quarters on the back of: (i) Silterra’s surging product ASPs, (ii) increasing wafer shipments; and (iii) soaring crude oil prices. We highlight that DNeX would be a major direct beneficiary of the soaring crude oil prices via its oil-producing assets in 90%-owned Ping Petroleum – amidst the ongoing Ukraine-Russia conflict.

Forecast. We raise our FY22-23 net profit forecasts by 11% and 7% respectively as: (i) we increase our Brent crude oil price assumption to USD80/bbl for FY22 and USD70/bbl for FY23 respectively. FYTD June, Brent crude oil price has averaged at USD79/bbl (1 July 2021 – 24 Feb 2022). Meanwhile, we maintain our conservative assumption of: (i) net ASP per wafer to be at USD500 for FY22; USD550 for FY23; and USD578 for FY24. Note that we are conservative on our assumptions for both of the group’s divisions.

Maintain BUY, higher TP: RM1.64/share. We maintain our BUY recommendation on DNeX with a higher SOP-derived TP of RM1.64/share (from RM1.35 previously) after adjusting for its net cash as at end-Dec 2021. We now peg Silterra’s multiple to 30x (from 25x previously), to reflect the monumental growth prospects for the semiconductor foundry over the next few quarters. Currently at only about 17x FY23F earnings in its entirety, we believe that DNeX is a compelling case given its strong foothold in both the front-end semiconductor and upstream energy spaces.

Source: Hong Leong Investment Bank Research - 25 Feb 2022