IN the list of best performers to-date, information technology stocks have fared very well, taking up five spots out of the top 20 polled by Bloomberg.

Among the five information technology counters, Datasonic Group Bhd (DSONIC 5216) tops the chart, and is one of the two companies that exceeded RM1bil in market capitalisation. The other one is e-services provider My E. G. Services Bhd.

My E.G.’s current price-to-earnings (P/E) ratio is slightly over 40 times while its forward P/E for the financial year ending June 30, 2014 is close to 27 times,Bloomberg data shows.

Datasonic’s current P/E, on the other hand is about 31 times and its P/E for the financial year ending Dec 31, 2013 forecast (FY13F) is 11 times.

Although categorised under the same group, the businesses of the two companies are very different, hence, cannot be compared vis-à-vis.

Any investors who bought Datasonic (DSONIC) shares earlier this year would have seen the value of their investment jump as the share price more than tripled to RM7.55. Even then, there are some analysts who think there is still upside for the stock.

It is learnt that investors, including “sizeable funds”, are meeting the management due to the company’s bright prospects.

In an e-mail reply to StarBizWeek, managing director Tan Sri Abu Hanifah Noordinsays: “The management is looking positive and is confident on the overall business outlook for Datasonic given the expected continued strong contribution from the secure ID and smart card personalisation solution sector such as the national ID project, passport project and other smart card project for other ministry and government agencies; large scale ICT projects, and new expansion project in CCTV and Security and Surveillance system project as well as e-health project.”

He also says that business opportunities would stem from new application systems for the MyKad and the passport polycarbonate pages. Apart from that, it is involved in the National Border Control, and projects involving CCTVs, and hospital and transportation infomration systems.

As for providing services for the financial sector, which does not contribute significantly to its earnings currently, Hanifah says: “The Government has mandate the national migration of One-Time-Pin (OTP) by 2016, which require migration of all credit card in Malaysia to the higher security OTP credit card. A national roll-out will be launched soon.”

He notes the evolving trend of credit card issuances and it has started the instant credit card issuance project in Malaysia for Citibank to enable credit cards to be issued instantly at all 15 Citibank branches and megamalls in the Klang Valley.

“This year, Datasonic manage to receive an order to set up another five instant credit card issuance sites for RHB Bank.

“Datasonic is looking positively to provide its instant issuance system and solutions to more other banks in both locally and overseas,” he says, adding that the growth for this segment is also boosted by the increasing number of credit card circulation in the country.

Recently, RHB Research analyst Kong Heng Siong initiated coverage on the company with a “buy” recommendation.

He wrote in his report: “Taking into account the potential orderbook replenishment from the supply of 10 million new MyKads come 2014 and potential margins enhancement when its MyKad assembly plant is commissioned by end-FY13F, we believe the group’s bottomline will breach RM100mil come FY15F.”

He expects earnings from smart chip-based solutions to more than double to RM76.6mil in FY13 from RM28.12mil in FY12, underpinned by higher contribution from its MyKad contract and maiden contribution from the passport segment in the second half of 2013.

While its MyKad and passport segments are its crown jewels, its over-dependence on contractual-based income also poses a threat.

Based on its financial results for its second quarter ended June 30, the company generated about 70% of its income from the supply of smart cards and consumables, while the remainder was from the supply of hardware consumables and datapages, personalisation solutions, maintenance and technical support services.

Hanifah says: “We are expecting to close on more CCTV projects in the first quarter of FY14. We currently have an order book of RM5.7mil for the provision of security cameras.”

Dealers say some funds may have the mandate to trade in stocks with certain liquidity but its proposed share split may improve the situation once the exercise is completed.

“This is still subject to shareholder’s approval in which we will be holding an EGM on Dec 10, 2013,” Hanifah says.

Currently, the company has an outstanding shares of 135 million and the share base will be enlarged to 675 million share upon completion of the exercise, which was proposed last month.

After hitting the RM1bil market cap size, more institutional funds “are able to look into it”, says a dealer.

Source: The Star