Review

• Dagang NeXchange Bhd (DNeX) reported 2QFY18 core net profit of RM12.3mn (-24.6% QoQ, +2.6% YoY). It registered 1HFY18 core net profit of RM28.5mn (+5.0% YoY) which accounts for 35% and 41% of ours and consensus’ full-year estimates respectively.

• We deem this as within ours and consensus expectations. We note that: 1) DNeX Portable Container System (PCS) contract has yet to recognise any revenue, and 2) we expect 2 liftings in a single quarter for the Anasuria field (1QFY18 and 2QFY18: 1 lifting each). Thus, DNeX’s FY18 earnings will likely be back loaded.

• We note that DNeX expects to deliver 50 units of PCS in FY18 valued at circa RM25mn. Although delivery has been delayed due to site readiness issues, DNeX is confident it can meet its FY18 target of 50 units delivered.

• We are pleased to note that DNeX’s energy division ex-associates has narrowed losses significantly from circa RM2.0mn in 1QFY18 to circa RM0.5mn in 2QFY18. We understand that DNeX expects this division to breakeven in FY18.

• Revenue and PATMI declined QoQ as Genaxis recognised only RM12.6mn in 2QFY18 (1QFY18: RM28.6mn), based on completion of work done of contracts in-hand. We understand that Genaxis current outstanding orderbook stands at RM80mn. However, this may be recognised over a period of 3 years.

• No dividend was declared for the quarter under review.

Impact

• We lower revenue recognition from Genaxis to reflect more conservative orderbook replenishment. Thus, our earnings forecasts are reduced by 4.2%/3.6%/4.8% in FY18/19/20.

Outlook

• We understand that DNeX is looking to acquire an oil field similar to Anasuria cluster. If this materializes, bottomline would be boosted significantly. Besides that, Ping Petroleum’s (30% owned by DNeX) 2P reserves have increased to 27mn bboe from 23mn bboe following the discovery of hydrocarbons at the Avalon oil field.

• We believe DNeX’s 1Trade system, which is Malaysia’s first one-stop portal for total cargo and trade management, is the future. Given that various multinational companies have begun utilising DNeX’s system, it will more than offset any loss of revenue from expiration of its NSW monopoly in end-FY19.

Valuation

• After our earnings adjustment, TP is reduced to RM0.63/share (previous: RM0.64/share) based on SOP valuation. Maintain BUY on DNeX as it directly benefits from the increase in crude oil price.

Source: TA Research - 7 Aug 2018