CIMB Research retains Add for Dagang NeXchange

KUALA LUMPUR: CIMB Equities Research is maintaining its Add and 75 sen sum-of-parts based target price for Dagang Nexchange (DNex). 

It said on Wednesday that new contracts for vehicle entry permit (VEP) and road charges (RC) systems at the Thai borders, and higher crude oil prices are potential rerating catalysts for the stock.
 
The key downside risks to our Add call are lower crude oil prices, decline in National Single Window (NSW) transaction volume post-expiry of its concession in September 2018, and delays in the VEP & RC contract awards.

CIMB Research expect DNeX to record a robust FY16-19F net profit compounded annual growth rate (CAGR) of 16%, driven by resilient earnings growth in both its IT services and energy segments. 

“However, we expect the energy division to record faster growth of about 22% per annum (vs. 13% growth for the IT division), driven by new contracts from OGPC and higher contributions from Ping.

“The stock is down by almost 23% from its year-to-date high in early-May 2017. We see the recent pullback in share price as offering an attractive buying opportunity given that the stock currently trades at 13 times CY18 fully diluted P/E, below its five-year mean P/E of 15 times,” it  said.

To recap, it said DNex’s revenue in 2Q17 rose by 12% on-quarter due to higher sales recognised from oilfield drilling services and higher operations and maintenance revenue from the vehicle entry permit and road charges (VEP & RC) systems and eWork permits. 

However, the group reported a lower core net profit of RM12.1mil in 2Q17 against RM15.2mil in 1Q17 due to a lower level of upstream activities in the quarter as a result of overall market softness in the oil & gas (O&G) industry. 

Meanwhile revenue in 1H17 grew by 25% on-year to RM92.9mil due to the consolidation of OGPC’s results, recurring income from operating and managing the VEP & RC system, as well as rising transaction volume on the NSW platform. Its associates’ contribution meanwhile more than doubled to RM8.5mil. 

CIMB Research pointed out that overall, 1H17 core net profit surged from RM10.7mil in 1H16 to RM27.3mil, after stripping out the one-off pre-acquisition gain in PING Petroleum (Ping) amounting RM85.3mil.

“Although 1H17 core net profit made up 41% of our and consensus full-year forecasts, we expect stronger earnings growth in 2H17.

“They will be driven by: 1) new earnings stream from the recently-awarded portable container system (PCS) supply contract of about RM50mil to RM75mil, which is expected to start in 4Q17, 2) the balance 20% VEP & RC system portion for the Johor-Singapore crossing, and 3) higher contributions from Ping on the back of a larger crude oil production volume,” it  said.