• Maintain BUY (TP: RM0.52). Dagang NeXChange Berhad (DNeX) 1H24 core PATAMI of RM22mn (-71% YoY) were below our expectation at 14%. 2Q24 core PATAMI declined 62% QoQ and 87% YoY to RM6mn dragged by weakness in IT and Energy segments. We cut our FY24-26F earnings forecast as we take a more conservative approach in our earnings assumption. Nonetheless, we remain encouraged with its plan to build a new 12-inch fab with Foxconn in Malaysia which may receive a boost from government grants and subsidies through the National Semiconductor Strategy (NSS) incentive. Maintain DNeX as a BUY with lower SOP-derived TP of RM0.52 (from RM0.58).

• Key highlights. 2Q24 revenue rose 8.4% YoY to RM298mn (4Q23: RM275mn) driven mainly by recovery in Silterra which recorded revenue improvement of 22% YoY to RM156mn (4Q23: RM128mn) aided by favourable ASP and higher wafer shipment. Meanwhile, energy segment revenue were largely unchanged at RM92mn whereas IT segment revenue declined 10% YoY to RM50mn (4Q23: RM55mn) due to lower cable installation and repair work services.

• Earnings forecast. We cut our FY24F/FY25F/FY26F earnings by 54%/37%/27% as we impute higher depreciation charges as well as a more conservative assumption to account for the stronger ringgit impact and slower-than-expected recovery of Silterra in 1H24.

• Outlook. We remain optimistic with Silterra’s turnaround in 2H24 leveraging on its strategy to venture into manufacturing of wafer for emerging technology as it will boost both ASP and utilization rate. We are also encouraged with the government’s National Semiconductor Strategy (NSS) incentive that should pave way to realise DNeX’s plan to build a new 12-inch fab with Foxconn in Malaysia.

Source: BIMB Securities Research - 30 Aug 2024