KUALA LUMPUR: CIMB Equities Research is cautious on Dagang Nexchange
’s (DNex) near-term outlook due to soft market environment and margin compression in the oil and gas (O&G) segment.
The research house had on Thursday cut its FY17-19F EPS by 6%-10% due to weaker earnings from OGPC and DNeX Oilfield.
However, it still forecasts the energy division to record 12% earnings growth in FY17F.
“Overall, we expect DNeX to record a robust FY16-19F net profit compounded annual growth rate of 17%. Maintain Add with a lower sum-of-parts target price of 74 sen as we roll over our valuation to end-2018,” it said.
CIMB Research viewed the potential extension of the National Single Window (NSW) trade facilitation exclusivity and monetisation of the group’s radio frequency identification (RFID) system as key re-rating catalysts for the stock.
The research house said it met with DNeX's management on Wednesday morning to discuss the group’s 1H17 results and outlook for 2H17.
“We left the meeting feeling cautious on DNeX’s near-term outlook due to soft market environment and margin compression in the oil & gas segment.
“However, it maintained its 30% revenue and 20% net profit growth guidance in FY17F on the back of new recurring income in IT division and full-year profit contribution from Ping,” it said.
DNeX highlighted that pretax profit from IT division surged 35% on-year to RM22.3mil in 1H17, driven by growth in its trade facilitation business and new recurring income from operation and maintenance of the vehicle entry permit (VEP) & road charge (RC) system.
Meanwhile, the energy division’s pretax losses (excluding Ping) narrowed to RM2.9mil in 1H17 vs. RM4.1mil in 1H16 due to higher utilisation at DNeX Oilfield.
Ping recorded RM8.5mil associate profit contribution in 1H17 mainly due to higher average crude oil prices.
There was no on-year comparison in 1H16, as the 30% stake acquisition in Ping was only completed at end-2Q16.
“Management expects lower production volume from Ping. However, the group still expects a stronger 2H17 contribution (vs. 1H17) from Ping due to higher average crude oil selling prices of US$56 barrel year-to-date (vs. US$45 barrel in FY16),” it said.
CIMB cut its FY17-19F EPS by 6%-10% to account for weaker earnings from OGPC and DNeX Oilfield, but still expect stronger earnings delivery in 2H17 driven by: 1) 20% recognition of the portable container system contract of RM75m, 2) the remaining 20% VEP & RC system portion for the Johor-Singapore crossing, and 3) stronger contributions from Ping.
“Overall, we project DNeX to record a robust FY16-19F net profit CAGR of 17%, driven by resilient earnings growth in both its IT services and energy segments.
“Based on our channel checks, the alternative system which is supposed to replace DNeX’s National Single Window (NSW) platform in Sept 18 could be delayed due to integration issues.
“Hence, we see potential for the NSW platform exclusivity contract to be renewed or extended.
“Apart from that, the group is also exploring possible monetisation of its RFID tags system that is suited for applications in transport and logistics areas, such as multi-flow lanes,” it said.
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