Overnight, DNeX announced that it has signed a MoU via its 90%-owned Ping Petroleum with Cerulean Winds to kick start a partnership initiative in delivering a dedicated offshore floating wind turbine for the Avalon greenfield development in the Central North Sea in UK. We are comforted and we applaud the group’s efforts to venture into more ESG-friendly measures to reduce GHG emissions via reduction of fossil fuel usage. We highlight at current levels, DNeX is trading at bargain valuation multiples of only 11.5x and 9.5x for FY23- 24f respectively in its entirety – based on our conservative earnings forecast. While timing a perfect entry point may be difficult to do, we believe that DNeX is currently trading at unwarranted levels given its luminous growth prospects. We maintain our BUY call on DNeX with an unchanged SOP-derived TP of RM1.69/share.

NEWSBREAK

Overnight, DNeX announced that it has signed a Memorandum of Understanding (MoU) via its 90%-owned Ping Petroleum with Cerulean Winds to kick start a partnership initiative in delivering a dedicated offshore floating wind turbine for the Avalon greenfield development in the Central North Sea in UK.

HLIB’s VIEW

Key highlights. We note a few key salient points, as below.

1) From the announcement, we gather that Ping Petroleum and Cerulean Winds plan to set up a JV company to deploy and operate a floating wind turbine, which will power the Sevan Hummingbird FPSO vessel acquired by Ping in early July this year from Teekay Corporation.

2) The Sevan Hummingbird FPSO first commissioned in 2008 and is a 60 metre diameter facility, which has a storage capacity of 270k barrels of oil and is capable of producing up to 30k barrels of oil per day, supporting up to 47 offshore personnel.

3) Ping Petroleum aims to connect the FPSO to a dedicated floating offshore wind turbine to power the facility thus minimising diesel and fuel gas usage as well as associated Greenhouse Gas emissions in the UK waters. The innovative and pioneering project is set to be one of the first oil and gas production facilities to meet the UK Government’s emissions reduction targets agreed in the North Sea Transition Deal in March 2021. The planned development allows Ping to expand and diversify its portfolio of producing assets in full compliance with the UK’s energy security and Net Zero targets.

4) We are comforted and we applaud the group’s efforts to venture into more ESG friendly measures to reduce GHG emissions via reduction of fossil fuel usage.

5) Also from the announcement, the Avalon greenfield is expected to produce first oil by mid-2025 (a delay from its previous guidance of mid-2024).

Now at bargain valuations as a tech name. We highlight that at current levels, DNeX is trading at a bargain forward valuation multiples of only 11.5x and 9.5x for FY23-24f respectively in its entirety – based on our conservative earnings forecast. While we note that with guidance and expectations of further rate hikes from the US Fed in 2H22, we believe that the tech sector may bear the brunt of trading volatilities in coming months. While timing a perfect entry point may be difficult to do, we believe that DNeX is currently trading at unwarranted levels given its luminous growth prospects.

Forecast. Unchanged.

Maintain BUY, unchanged TP: RM1.69/share. We maintain our BUY call on DNeX with an unchanged SOP-derived TP of RM1.69/share. Currently at about 11.5x 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 - 3 Aug 2022