5QFY15 net profit of MYR6.8m came in below our previous expectations of MYR13m-15m. We attribute this to slower-than-expected orders for MyKad as well as development expenses incurred from new projects.Taking that into account, we slash our FY16-17F EPS by 25-30%. Maintain BUY with our TP lowered to MYR1.29 (from MYR1.66, 28% upside), based on 25x 2016 P/E.

• Results review. 5QFY15 (Mar) revenue of MYR47.9m declined 7.6% YoY and 20.7% QoQ as its MyKad delivery slowed to 1.0m (vs 1.2m/1.5m for 1QFY15/4QFY15) on a slowdown in orders from the Government. EBIT sank by a larger quantum to MYR8.5m (-51.4% QoQ,-42.9% YoY) as profitability took a dent on higher opex as Datasonic incurred development expenses of MYR2m-3m from new projects during the quarter. Core earnings of MYR6.8m came in below our expectations. YTD comparisons are not meaningful given the company’s change of FYE to March (from December), which results in a 15-month reporting period for FY15. We estimate that Datasonic is currently sitting on an outstanding orderbook of 6.5m MyKad copies plus 8.0m units of MyKadconsumables. Its national passports’ photo-page contract, meanwhile, had a remaining balance of 5.0m copies as of Mar 2015.
• Potential job ahead. Our channel checks indicate that the group could be eyeing the contract to provide smart chips for Malaysian passports by 3Q15. Under the current arrangement, smart chips are embedded in the back cover of Malaysian passports. We gather that Datasonic isproposing to integrate the contactless chip into the polycarbonate data page in order to enhance security. This, if materialise, could bring in additional revenue of MYR60m-70m pa.
• Forecasts and risks. We cut our FY16-17F EPS by 25-30% factoring in slower MyKad deliveries as well as higher opex assumptions. Key risks include prolonged weakness in global crude oil price recovery and a potential slowdown in MyKad orders from the Government.
• Maintain BUY. Despite the results disappointment, we continue to like Datasonic given its unique status as the largest security solutions provider in the country. We expect positive news flow on potential orderbook replenishment over the next 2-3 months. Maintain BUY withour TP lowered to MYR1.29 following our earnings revision based on 25x 2016 P/E.