Datasonic’s  9MFY15  (Mar)  core  earnings  of MYR52.7m came in  withinour  expectation,  at  70.0%  of  our full-year estimate.  Maintain  BUY  with our TP  revised to MYR1.66  (51% upside),  based on an unchanged 25x FY16F  P/E.  That  said,  we  cut  our  FY16-17F  EPS  by  21-22%  as  we remove  the  potential  earnings  contribution  from  its  proposed  fuel subsidy job in view of current weakness in crude oil prices.

Results  review.  Datasonic’s  9MFY15  revenue  closed  at  MYR185.4m, marking  a decline  of  8.0%  YoY  on  lower  contracted  selling  price  of its MyKad  at  MYR17.50/copy  (from  MYR18.00)  as  well  as  fewer  MyKaddelivered.  We  estimate  that  the  group  delivered  approximately  5.0m copies of such cards during this  period  vis-à-vis  over 6.0m in 9MFY14. EBIT  declined by a larger quantum at 25.0% YoY to MYR61.2m due to escalated  depreciation  expenses,  following  acquisition  of  business premises  as  well  as  an  assembly  plant  in  2014.  Core  earnings  of MYR52.7m  (-21.2%  YoY)  was  within  our  expectation,  at  70.0%  of  our full-year  forecast.  3QFY15  numbers  were  generally  weaker  YoY  but higher QoQ due to variation in the number of MyKad delivered.

Outstanding orderbook. We estimate that Datasonic is currently sitting on an outstanding orderbook of  7.5m MyKad  copies plus  5.5m national passports’  photo-pages.  This  would  continue  to  drive  its  earnings momentum as we step into FY16.

Fuel or no fuel? Share price has come off by over 40% over the past sixmonths on growing concerns over further delays in the implementation of the  fuel subsidy programme  in view of  te  current global crude oil price weakness. To better reflect current market circumstances, we revisit  our model  and  remove  the  MYR25m-30m  earnings  contribution,  which  we have  factored  into  our  estimates  previously.  Consequently,  we  cut  our FY16-17F EPS by 21-22%.

Maintain  BUY.  Despite  our  earnings  revision,  we  continue  to  like Datasonic  given  its  unique  status  as  the  largest  security  solutions provider in the country.  Management is actively working on  new income sources to help replenish  its orderbook. As such, we m aintain BUY  but our TP now stands at MYR1.66 (from  MYR2.10)  following our earnings revision. Key risks include prolonged weakness in global crude oil price recovery and potential slowdown in MyKad orders from the Government.

Source: RHB