• Maintain BUY (TP: RM0.52). Dagang NeXChange Berhad (DNeX) 9M24 core LBT of RM16.5mn were deemed with our expectation. 3Q24 core LBT narrowed 82% QoQ to RM2.8mn driven largely by better performance by Silterra. In near-term, we expect Silterra to recover further though the pace could be gradual as qualification process to on-board new clients from data centres for the Silicon Photonics chips may take some time. Maintain DNeX as a BUY with an unchanged SOP-derived TP of RM0.52.

• Key Highlights. 2Q24 revenue declined 11.8% QoQ to RM263mn mainly dragged by Energy segment whose revenue declined 43% QoQ and 54% YoY to RM52mn. Ping Petroleum’s sales volume halved to 103k bbls (5Q23: 203k bbls, 2Q24: 189k bbls) as it was affected by 38-days planned shutdown in Aug 2024 (prior year was in Oct 2023). Realised oil price was also lower at USD75k/bbl ((5Q23: USD97/bbl, 2Q24: USD84/bbl). Nonetheless, Energy segment remained as main earnings contributor to the group with PBT of RM11.7mn (Table 2). On the other hand, Silterra’s recovery was gaining momentum with revenue rose 3.4% QoQ to RM161.5mn while LBT was minimal at RM0.4mn. Revenue contribution from Emerging Technology (i.e Silicon Photonics) accounted for 25% of Silterra’s revenue in 3Q24.

• Earnings Forecast. No changes.

• Outlook. We remain optimistic with Silterra’s turnaround as the company is seeing a steady increase in demand for Silicon Photonics which is becoming a core technology for data centres and artificial intelligence (AI). For FY25F, the company is encouraged with the potential new income stream from (i) first oil from Abu Cluster with expected production of 2.5k bpd from Oct 2025 onwards, and (ii) sovereign cloud services under partnership with Google cloud targeting government agencies as the primary target market

Source: BIMB Securities Research - 29 Nov 2024