The News

• Dagang NeXchange Bhd (DNeX) announced that it received a notice of proposed decision from Malaysia Competition Commission (MyCC) on alleged infringement of the Competition Act 2010. This was after receiving complaints from undisclosed parties.

• MyCC proposed to impose a fine of RM17.4mn and DNeX will have to take remedial action.

• We understand that the proposed decision is linked to DNeX’s NSW business. DNeX allegedly refused to supply new or additional electronic mailboxes to end-users that did not utilise DNeX’s authorised software solutions partners.

• DNeX is in consultation with its legal counsel and will take all necessary actions to challenge the proposed decision.

Our View

• We are neutral on the news as the decision to fine DNeX is not final at this juncture. DNeX has until 20 August 2018 to submit its written response and can indicate if it wants to make oral representation.

• We believe DNeX has a very strong case as it is responsible for maintaining data integrity within the NSW. Utilising unauthorised software solutions could potentially jeopardise this.

• Furthermore, we expect that legal fees incurred will be minimal as the case is currently not being mooted in court.

• Therefore, we do not expect the news to have significant impact to DNeX’s earnings at this juncture.

• Nevertheless, our worst-case scenario is DNeX losing the case, and being forced to pay the RM17.4mn fine. This constitutes circa 38% of its current cash position.

• To recap, DNeX’s NSW contract tenure expires in 31 August 2019. Thereafter, DNeX will lose its monopoly of the system. That said, we believe it will lose only 20% of revenue derived given its entrenched market position.

Impact

• Maintain our earnings forecasts.

Valuation

• We maintain our TP of RM0.64/share based on SOP valuations. We maintain BUY on DNeX underpinned by 1) better crude oil price and 2) continued growth in its trade facilitation services.

Source: TA Research - 13 Jul 2018