DSONIC (5216) - Datasonic on a roll

ICT firm has been winning government contracts, and is expecting more in next 6 months

WHILE ICT firm Datasonic Group Bhd may be better known for its dramatic share price movements in late 2013, the company has been steadily making inroads into the public sector.

Those inroads amount to this - a total of RM802.53mil in contracts secured over the last six months, mainly relating to the Immigration Department.

Not only that, the company’s deputy managing director and major shareholder Chew Ben Ben (pic) tells StarBizWeek, that Datasonic is poised to secure another RM800mil worth of IT-related contracts from the Government in the next six months, a move which will significantly boost its order book.

Yet another growth area is overseas expansion, which is led by the group’s chief technology and information officer, Zulkhornain Ranee, whose past experience entails working with African governments on IT solutions for projects relating to border security.

Apart from this, Datasonic is also the supplier of raw identification cards to the National Registration Department under an existing contract since 2011, generating about 400,000 new cards each month.

So is Datasonic fast becoming the biggest name in security solutions for the Government, a space in which Iris Corp Bhd has so far been the dominant player?

Also, what is the story behind the unexplained meteoric rise in its share price in 2013?

Over a period of eight months between May and December 2013, Datasonic’s share price spiked from about RM2 to almost RM10.

Even after its one-into-five share split exercise, Datasonic shares continued on an uptrend.

Between June 2013 and February 2014, Datasonic saw its share price leap by close to 900%, after which it attracted an Unusual Market Query (UMA) from the stock exchange.

The company in its response confirmed that it was not aware of any corporate development or explanation that could give rise to the unusual trading activities in its securities then.

Later in April 2014, Bursa Malaysia issued a statement warning investors to exercise caution and to make informed decisions in the trading of the company’s shares and warrants, causing the shares to take a slight beating.

On this issue, Chew, a former dealer’s representative, says the speculative buying of his company shares were due to Datasonic’s interest in the proposed national fuel subsidy rationalisation programme.

Datasonic had announced that it would pay RM10mil for a 30% stake in Fuelsubs House Sdn Bhd, which was bidding for the contract to manage the fuel subsidy programme.

However the programme was later scrapped.

“I think it (the share price surge) was related to the fuel subsidy programme, because oil prices went up very high at the time.

“There were reports that the Government was planning a targeted subsidy instead of a blanket subsidy, so this got investors excited.

“We were also suprised it went up that high,” he says.

Apart from the 30% stake, Chew adds that Datasonic was set to handle the IT-related matters for the fuel subsidy programme if Fuelsubs had clinched the contract, and this would have gained the company additional revenue.

Notably though, Chew says that neither he nor other major shareholders sold any shares in the company during that time.

Chew is Datasonic’s second largest shareholder with a 23.9% stake. The largest shareholder is Datuk Abu Hanifah Noordin, the company’s managing director, with 37% in the company.

“I didnt sell because we were confident about getting the fuel subsidy project.

“However the oil price fell, and the Government decided not to pursue the programme,” he says.

Chew also points out that at the share peak of close to RM10, it traded only a historical price earnings (PE) multiple of around 33 times.

At the moment, Datasonic trades at a price earnings multiple of 27 times, not that much lower than its peak.

But it is Datasonic’s growth story and ability to secure new contracts that should put the company on the radar of investors.

On April 27, 2016, Datasonic was awarded with the Letter of Award (LOA) amounting RM223.38mil from the Home Ministry for the supply of the Malaysian Passport booklets for a period of five years or 13.416 million passports commencing December 1, 2016.

Subsequently, on May 10, 2016, another LOA amounting to RM260.4mil was awarded to the group from the ministry for the supply of 12 million MyKad raw cards and MyKad consumables for three years and six months commencing July 1, 2016.

Combined with a contract from the ministry for the supply of the Malaysian passport chips for five years amounting to RM318.75mil commencing Dec 1, 2016, total contract value secured over the last six months is RM802.53mil.

Following these back-to-back contract wins, RHB Research listed Datasonic as among its top “buy” stocks on June 6, with a target price of RM2. The target price had previously been RM1.87.

“Datasonic’s recent passport chips job contract win, coupled with the potential renewal of its existing contracts (to be secured progressively over the next 6-12 months), may likely propel its earnings as well as share price to a new high,” RHB had said in a note to clients.

Datasonic turned in a net profit of RM18.9mil on the back of RM74.05mil in revenue in the fourth quarter ended March 31, 2016.

This translates to a 179.8% jump in net profit and a 54.6% surge in revenue compared with the corresponding quarter last year.

The company’s full year performance saw an improvement in revenue of RM241.31mil from RM233.33mil previously, while its net profit increased by 5.9% to RM62.89mil or 4.67 sen per share.

Datasonic is poised to continue growing its profit significantly if it can execute the newly won projects well.

More so, if it manages to secure the additional RM800mil plus projects it is vying for.

DSONIC (5216) - Datasonic on a roll