Datasonic’s  share  price  has  surged  >30%  over  the  past  five  trading days.  We believe investors  are  recognising  its  potential  amidst current market  expectations  that  the  Government  will  impose  a  compulsory migration  to  the  new  MyKad.  Thus,  we  upgrade  our  FV  to  MYR3.36 (from MYR2.58),  based on  a  revised 23.5x FY14F  P/E.  Its 4Q13 results, due for release on 28 Feb, will likely be in line with our forecasts.

• 4Q13 results preview.  Datasonic’s 4Q13 results  will  be released on 28 Feb. We expect  its  full-year net profit to  be  within  MYR80m-81m, in line with our  MYR80.8m  forecast. This  is  premised  on our assumption that approximately 6.5m copies of new MyKads  were delivered in FY13.  We forecast  a  second  interim  DPS  of  0.9  sen,  based  on  a  20%  full-year payout  ratio.  That  said,  we  do  not  discount  the  possibility  of  potential dividend  surprises,  as  management  could  look  to  reward  its  existing shareholders in view of the current share price outperformance.
• Potential  compulsory  migration  towards  new  MyKad.  In  our  recent visit to one of the National Registration Department  (NRD)’s  branches, we  were  positively  surprised  by  the  number  of  citizens  voluntarily changing  their old MyKad  for  the  new  one.  Our conversation with  NRD officers reveals  that there  have  been a slew of applications over the last 3-4  weeks  although  the  applicants  did  not  have  issues  with  their  old cards. This suggests that there seems to be a general consensus among the public  that the  Government will soon impose compulsory migration towards  the  more  security-enhanced  new  version.  This,  we  believe, could prove to be a further boost to Datasonic, that we believe will be the biggest  beneficiary  of  a  possible  compulsory  migration  to  the  new MyKad.   
• Maintain BUY.  All in, we remain upbeat on  Datasonic’s prospects  and maintain our BUY call. In view of its improved liquidity, which we attribute to growing investors’  awareness, we bump  up our FY14F  target  P/E to 23.5x (from 18.0x),  in line with  its  closest peer  My EG Services (MYEG MK, NR). We note that the valuation gap between the two  has  narrowed to 20%,  from as high as 60% during our  coverage  initiation.  We  expect the  valuation  gap  to  continue  to  narrow,  given  Datasonic’s  relatively larger  earnings  base  –  almost  doubling  that  of  MY  EG  Services.  With that, our FV now stands at MYR3.36 (from MYR2.58). BUY.

Financial Exhibits

SWOT Analysis

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

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

Recommendation Chart

Source: RHB