The News

• Dagang NeXchange Bhd’s (DNeX) 60% indirectly owned subsidiary Innovation Associates Consulting (IAC) received a letter of award from the Accountant General’s Department Malaysia for the maintenance of iGFMAS. Note that iGFMAS is an accounting accrual system, which was implemented by DNeX for the federal government.

• The contract tenure is for 1 year beginning 10 August 2018 and has a contract value of RM59.4mn. Recall that IAC is owned by DNeX’s 51% owned subsidiary Genaxis.

Our View

• We are positive on the contract win as it proves that DNeX still has the capability to win contracts under the new Pakatan Harapan government.

• We note that DNeX was previously awarded the contract to implement the iGFMAS system with contract value of RM151mn over a 3-year period. We understand that the outstanding amount for the implementation contract is circa RM104mn currently.

• We believe the maintenance contract for iGFMAS may be further renewed after the first year. Furthermore, we note that the accrual accounting system may be adopted by the various state governments in Malaysia. It is currently only being used by the federal government.

Impact

• We increase our earnings forecast in FY18/19/20 by 1.5%/3.1%/0.5% after including the new maintenance contract into consideration assuming 4 months contribution in FY18 and 8 months contribution in FY19.

Valuation

• We increase our TP to RM0.71/share (previous: RM0.69) based on SOP valuation after the revision in earnings estimates. We maintain BUY on DNeX underpinned by 1) better crude oil price and 2) continued growth in its trade facilitation services. Potential new contracts secured by its various businesses will present further upside for the Group.

Source: TA Research - 29 Oct 2018