Datasonic has proposed to acquire a smart card manufacturing plant from Formosa Prosonic Industries (FOR MK; NR) for MYR21.9m. This will boost its operational margins in the long run by increasing its inhouse manufacturing and assembly capacity. That said, we are now downgrading our call to NEUTRAL (from Buy), with our FV unchanged at MYR4.08, given the limited upside. The share price has surged >200% since we initiated coverage in Nov 2013.
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The salient details. The proposed acquisition will involve 100% equity interest in Asia Pacific Card & System SB (ACPS), together with its wholly-owned subsidiary, Constant Ahead SB. ACPS, which manufactures as well as assembles electrical integrated circuit cards, is currently one of Datasonic’s main outsource partners in the procurement and assembly of MyKad. The acquisition, in our view, is expected to boost Datasonic’s operational margins in the long run by increasing its in-house manufacturing and assembly capacity. In addition, Datasonic would also be able to tap into ACPS’ technological knowhow, and supply chain and processes in the smart card business. All in, we are positive on the acquisition. Meanwhile, funding of the total cash consideration of MYR21.9m should not be an issue as we are forecasting an annual operating cash flow of MYR100-120m for Datasonic.
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Forecasts retained. We make no changes to our forecasts for now as we had earlier incorporated margins improvement in its operations owing to higher economies of scale. Our FY14F and FY15F estimates are premised on our assumption that the group would soon secure another order of 10m copies of MyKad worth MYR180-200m.
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Downgrade on limited upside for now. Since we initiated coverage in mid-Nov 2013, Datasonic’s share price has surged >200% from a low of MYR1.29 (ex-bonus). Given the limited upside to our current FV of MYR4.08, which is based on a 25.0x CY15 P/E, we are taking the opportunity to downgrade our call to NEUTRAL. Still, we do not discount the possibility of revisiting our forecasts should m anagement secure new initiatives outside the existing MyKad and passport space. In particular, we are looking forward to more developments on the electronic medical and health record systems front, as well as the intelligent transport information system that the group is currently developing.
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Recommendation Chart
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Source: RHB
johnny cash
http://klse.i3investor.com/servlets/ptres/22369.jsp
Still, we do not discount the possibility of revisiting our forecasts should m anagement secure new initiatives outside the existing MyKad and passport space. In particular, we are looking forward to more developments on the electronic medical and health record systems front, as well as the intelligent transport information system that the group is currently developing.
RHB IS ACTUALLY WAITING FOR THE ABOVE NEWS??????????? IN ORDER TO RERATE THE STOCK
2014-04-29 22:18