Hidden confidence for the stock? Back in October 2013, Censof Holdings Bhd offered a technical GO to acquire 45.03% or 349.1m shares at RM0.20 each in Time Engineering Bhd (TEB), which is now known as Dagang Nexchange Bhd, for a cash consideration of c.RM69.82m. The technical GO price was then considered to be way undervalued compared to TEB’s share price of RM0.27 then. Despite the lower value offered by Censof, the share price of TEB did not react negatively and had maintained above RM0.27. This suggested that investors remain confidence in TEB.

Recovering from the red. Dagang Nexchange Bhd (DNEX) reported a strong PATAMI of RM1.92m (+272% YoY) in 1Q14, mainly driven by: (i) better trade facilitation business and (ii) prudent cost management, which saw the PBT margin expanding to 24.9%% from 10.7% a year ago. On a quarter-to-quarter basis, it managed to recover from the red (4Q13: -RM8.4m), thanks to the absence of impairment loss where the group was hit by RM9.8m impairment loss on Plant and Equipment (in the integrated enterprise center at Cyberjaya) in 4Q13.

Extension of trade facilitation concessionaire. DNEX’s contract for the implementation of National Single Window (NSW), which currently accounts for c.90% of the group’s revenue has been extended for another two years (until 24 September 2016) by the authority recently. The time extension would allow the group to further strengthen its position in the trade facilitation business segment. We understand that management plans to leverage on the existing clients and further broaden its products range to both the domestic and overseas markets.

Venturing into e-Commerce business segment. The Group is planning to venture into an e-Commerce business with the aim to focus on the Business to Business (B2B) segment by providing a one-stop trade facilitation as well as financial services. The new service is set to leverage on its parent company, Censof Holdings Bhd which expertise is providing a back-end financial management solution. We understand that the group is currently negotiating with several local banks to explore the services. DNEX is targeting its e-Commerce business segment to contribute c.40.0% of the Group’s revenue by FY16.

International play in the making. DNEX is a member of the Pan Asian e-Commerce Alliance (PAA), which consist of 11 countries in the region. The group plans to establish a regional collaboration with members of the PAA and develop an ASEAN Single Window to improve trade facilitation within the region. Meanwhile, we also understand that the group intends to develop a Global Halal Exchange platform to enhance and promote Halal products going forward.

Non-rated with a fair value of RM0.30. We are expecting the group to record PATAMI of RM8.7m-RM10.0m in FY14-FY15, underpinned by: (i) 10.8% targeted growth in its NSW segment in FY14 followed by 7.1% in FY15, to align with our in-house economic team total trade forecast for CY14-CY15; (ii) 5% organic growth in its systems integration division; and (iii) a targeted PBT margin of 22%. Note that, we have yet to include the e-commerce segment contribution into our earnings forecast given the division is still in an infancy stage. At RM0.30, DNEX is currently trading at FY15 PER of 23.2x, which is higher than the FBM Small Cap forward PER of 12.0x. We will re-visit the stock when the share price trading at a more reasonable valuation.

Source: Kenanga