Datasonic’s  share price will go  “ex”  today following the completion of its 1-to-5 share split.  With that, we foresee  improvement in its trading liquidity .  We believe  FY13  earnings could surpass our  MYR80.8m  fullyear estimate, with dividend surprise  likely on the cards  too. Maintain BUY with our FV bumped up to MYR2.58  (from MYR2.36),  as we ascribe a higher FY14F target P/E of 18.0x. Share base to hit 635.0m. Datasonic’s daily traded volume averaged at 0.5m shares over the last two months, compared to 0.2m shares prior to our initiation.  The completion of its  1-to-5  share split exercise  will  boost its outstanding share base to 675.0m (from 135.0m). This,  in our view,could  entice  participation  from  retail  investors  and,  hence,  improve trading liquidity over the near- to medium-term.

• FY13  earnings  could  beat  estimates.  We  believe  its  FY13  earnings, due to be released by mid-Feb 2014,  could potentially surpass our  fullyear  estimate  of  MYR80.8m.  W e  gather  that  improvements  in  overall profitability  are  likely  on  higher  economies  of scale,  given  that  both  its MyKad and passport contracts have gained further traction in 4Q13.
• Potential dividend surprise. Given that management is committed to a payout  of  at least 20% of net profit,  Datasonic’s  FY13 final dividend too could  also  potentially  surprise  on  the  upside,  vis-à-vis  our  current estimate  of a final DPS of 0.9 sen.  Based on our projections, the group will  turn net cash  in  FY15F, during which we expect  Datasonic to  revise its dividend payout ratio higher.
• Maintain BUY.  While we make no changes to our earnings forecasts at this  juncture,  we  lift  our  FV  to  MYR2.58  (from  MYR2.36),  based  on  a revised FY14F P/E of 18.0x (from 16.5x). This hinges on our view that its existing  valuation gap of  35-40% against its closest  listed  peer,  My EG Services (MYEG MK,  NR), that  currently  trades  at  23.0x CY14 P/E, will narrow down on  expected improvements  in trading liquidity, as well as potential  awards  of  new  contracts  in  the  next  few  months  to  drive investors’ interests.  Given the potential upside  of over 30%, we maintain our BUY call. 

Financial Exhibits

SWOT Analysis

• Involved in the provision of smart chip-based ICT solutions, in which it has an established presence.

Company Profile
Datasonic (DSON) is principally involved in the provision of Information and Communications Technology (ICT) solutions that include smart card personalisation services, customisation of large-scale government ICT solutions, project management, as well as technical consultancy services.

Recommendation Chart

Source: RHB