DNeX’s 3QFY22 core PATAMI of RM51.7m (-17% QoQ) and 9MFY22 core PATAMI of RM144.4m beat expectations yet again (albeit significantly higher tax rate in 3QFY22) at 83% of our full-year forecasts and 85% of consensus. We strongly believe that DNeX’s growth prospects over FY22-23f are intact on the back of: (i) Silterra’s increasing product ASPs, (ii) increasing wafer shipments; and (iii) higher realised crude oil prices. We raise our FY22-23f net profit forecasts by 8% and 3% respectively while leaving FY24f estimates relatively unchanged – mainly to account for higher realised oil price assumption for its 90%-owned Ping Petroleum to match our in-house estimates. Maintain BUY with a higher SOP-based TP of RM1.69/share (from RM1.64 previously).

Beat expectations yet again albeit significantly higher tax rates in 3QFY22. DNeX’s 3QFY22 core PATAMI of RM51.7m (-17% QoQ, not meaningful YoY) and 9MFY22 core PATAMI of RM144.4m – having adjusted for: (i) RM264.5m gain from the acquisition of Silterra; (ii) RM11.5m impairment loss on receivables; and (iii) RM8.4m on forex losses, came in above expectations at 83% of our full-year forecasts and 85% of consensus. We believe that the key variance against our forecasts was attributed to higher-than-projected realised crude oil price and net ASP per wafer throughout 3QFY22. However, we highlight that the outperformance throughout the quarter was pretty-much masked by a higher tax expense of RM32.0m – which mainly stems from Ping Petroleum due to an exercise to streamline the unit’s tax and deferred tax expense to be more spread out over multiple quarters.

Dividends. No dividends were declared in 3QFY22 – as expected.

QoQ. Revenue was up by 8% QoQ while core profit dipped 17% mainly due to a higher tax expense of RM32.0m. Operationally, Ping Petroleum’s revenue and PBT spiked up by 24% and 271% respectively due to higher realised oil prices while Silterra’s revenue and PBT increased 4% and 17% respectively and we believe that this was due to higher wafer ASPs.

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 strongly believe that DNeX’s growth prospects over FY22-23f are intact on the back of: (i) Silterra’s increasing product ASPs, (ii) increasing wafer shipments; and (iii) higher realised 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.

Forecast. We raise our FY22-23f net profit forecasts by 8% and 3% respectively as: (i) we increase our Brent crude oil price assumption to USD90/bbl for FY22 and FY23 respectively. FYTD June, Brent crude oil price has averaged at USD88/bbl (1 July 2021 – 27 May 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.

Maintain BUY, higher TP: RM1.69/share. We maintain our BUY recommendation on DNeX with a higher SOP-derived TP of RM1.69/share (from RM1.64 previously) after: (i) adjusting for its net cash as at end-March 2021; and (ii) raising Ping Petroleum’s realised oil price/bbl to match our in-house estimates. Currently less than 15x 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 - 30 May 2022