DNeX posted 4QFY22 core PATAMI of RM65.2m (+26% QoQ), bringing FY22 core PATAMI to RM201.2m. The results came in above expectations yet again, beating our/consensus full-year forecasts by 108%/107%. We strongly believe that DNeX’s growth prospects in FY23-24f are intact on the back of: (i) Silterra’s increasing product ASPs, (ii) increasing wafer shipments; (iii) elevated crude oil prices; and (iv) improved production and offtake volumes from Ping Petroleum’s Anasuria asset with the replacement of its subsea riser scheduled in Sep 2022. We raise our FY23-24f net profit forecasts by 5% and 4% respectively to account for higher 60%-owned Silterra’s wafer ASPs and profit margin assumption for the unit. Maintain BUY with a higher SOP-based TP of RM1.74/share (from RM1.69 previously).

Beat expectations, yet again. DNeX reported 4QFY22 core PATAMI of RM65.2m (+26% QoQ, not meaningful YoY) and FY22 core PATAMI of RM201.2m – having adjusted for: (i) RM9.7m net impairment loss on receivables; (ii) RM264.5m gain from the acquisition of Silterra; and (iii) RM93.6m on deferred tax assets on Silterra’s unabsorbed capital allowance and business losses. The positive results surprise at 107%/108% of ours/consensus forecast, were due to higher-than-expected Silterra’s wafer ASPs and profit margins.

Dividend. No dividends were declared in 4QFY22 as expected. Total FY22 dividend: 0.6 sen/share.

QoQ. Core net profit was up 26% QoQ mainly due to: (i) higher wafer ASPs in 4Q; (ii) better earnings performance across all IT business units which include Trade Facilitation, Systems Integration and Consulting and Telco businesses.

YoY. No meaningful comparison as the group had 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 in FY23-24f are intact on the back of: (i) Silterra’s increasing product ASPs, (ii) increasing wafer shipments; (iii) Silterra’s capacity expansion by an additional 10%, slated for completion in early 2023; (iv) elevated crude oil prices; and (v) improved production and offtake volumes from Ping Petroleum’s Anasuria asset with the replacement of its subsea riser scheduled in Sept 2022. In the medium term, DNeX’s growth will also be underpinned with its new Avalon greenfield up and coming in mid-2025 (FY26), which would potentially quadruple Ping Petroleum’s current output and its recent MoU with Foxconn to develop a new 12-inch wafer fab to support its EV ventures. We are excited and upbeat about DNeX’s luminous growth prospects in the coming years.

Forecast. We raise our FY23-24f net profit forecasts by 5% and 4% respectively to account for: (i) higher 60%-owned Silterra’s wafer ASPs and profit margin assumption for the unit; and (ii) increased profit contribution assumption from its IT segment (NSW).

Maintain BUY, TP: RM1.74/share. We maintain our BUY call on DNeX with a higher SOP-derived TP of RM1.74/share (from RM1.69 previously) after: (i) adjusting for its net cash as at end-June 2022; and (ii) raising Silterra’s product ASP and profit margin assumptions. At about 12x revised 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 Aug 2022