Datasonic is set to release its quarterly results by end-May. We expect core earnings to come in at MYR12m-14m, ie 12.2-14.3% of our full-year forecast. We see this as a temporary blip,  given that it  only secured the MyKad contract extension in late April. We believe numbers should pick up  substantially  come  2QCY14,  as we expect  the  group  to  deliver  4m MyKad copies by June. Maintain BUY with FV unchanged at MYR4.08.

• Potential  blip  in  earnings.  We  expect  Datasonic’s  January-March quarterly  core  earnings  to come  in  at  MYR12m-14m,  ie  12.2-14.3%  of our full-year forecast. This may seem below expectations at first glance ,but we  see this as a temporary blip  as  the group  only  secured a tenure extension of its outstanding order of 4m  MyKads  in late  April. Note that these  4m  identity  cards  were  supposed  to  have  been  delivered  by  31 Dec  2013.  Given  that  the  extension  was  only  approved  in  April,  we believe  physical  deliveries  of  the  cards  in  January-March  would  have been slower at an estimated 1.1m-1.5m for the quarter. Nonetheless, we expect  numbers  to  pick  up  come  2QCY14,  in  order  to  deliver  the outstanding 4m MyKad copies by 30 June.
• Bonus  issue  to  be  completed  by  June.  Its  proposed  1-for-2  bonus issue  is  expected  to  be  completed  by  11  June.  Upon  completion, Datasonic’s  outstanding  share  base  would  increase  to  1,350m  (from 675m).  This,  in our view, should  help to further improve trading liquidity by enticing participation from retail investors in particular.
• Risks.  Datasonic’s  provision of  MyKads  and  national passports’  photo pages  should  contribute  to  over  85%  of its earnings over the next  two years.  While we do not deny risks of earnings concentration over these two  contracts,  we  believe  the  group  should  gradually  diversify  its earnings base over the medium to longer term.
• Maintain BUY.  No changes to our forecasts,  as we expect earnings to pick up momentum come 2QCY14. Hence, we are maintaining our BUY recommendation with our FV unchanged at MYR4.08  (or MYR2.72 ex bonus). This is based on a 25.0x CY15 P/E. 

Source: RHB