DNEX: Building a base

Worst could be over for SilTerra. We believe the worst could be over for SilTerra and expect DNEX’s technology segment to record a gradual recovery towards profitability, premised on (i) increasing wafer shipments and ASP, and (ii) continued optimisation of operational costs. Notably, the rising sales contribution from emerging tech is poised to drive the group’s wafer ASP. The ASP for emerging tech is higher than that of core technology by 3-4x, and sales for these products have notably increased from c.10% to the current c.17%. In light of the projected recovery in semiconductor sales in 2024 and the on boarding of new customers, we anticipate a gradual improvement in its utilisation rate (5QFY23: c.65%) moving forward. We highlight that SilTerra's utilisation rate has improved gradually from 50-60% following clients’ inventory adjustments.

Ping – take note on Abu and Meranti clusters. In addition to DNEX’s technology segment, we project Ping's performance to remain resilient, supported by elevated Brent oil price at the range of USD80-90 per barrel throughout 2024 (vs 2023’s average USD 90.5). Noteworthy catalysts to monitor include the potential contributions from Abu Cluster and Meranti Cluster. Both assets, with ownership stakes of 100% and 60%, respectively, are projected to achieve their first oil production by the end of FY24. The estimated production volume of Abu Cluster and Meranti Cluster are 2.5k and 2k bpd, respectively, more than double of Ping Petroleum's existing net production of approximately 2k bpd. Meanwhile, the Fyne field (42.5% interest) and A Cluster (70% interest) are expected to achieve first oil in 2026 and 2027, respectively, thereby strengthening Ping’s future earnings trajectory.

Building a base. After plunging 14.1% from a Nov23 high of RM0.46 to RM0.395 yesterday, DNEX is building a base at RM0.38-0.40 with volume expanding, which indicate a strong buying momentum supporting the stock prices to fall further. With this, we believe a rebound is on the card if DNEX manage to hold up above the the said base stiffly. A successful breakout above RM0.41 will spur the stock price back to RM0.44-0.46-0.50 levels. Cut lost at RM0.36.

Collection range: RM0.375-0.380-0.395

Upside targets: RM0.44-0.46-0.50

Cut loss: RM0.36

Source: Hong Leong Investment Bank Research - 17 Jan 2024