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Bumper profits from DNEX (4456) DAGANG NEXCHANGE BHD's SilTerra in FY2022-2024?

Semiconductor-based SilTerra Malaysia, post-acquisition by Dagang NeXchange Bhd (DNeX) and its Chinese partner, is expected to register a net profit of RM158.6 million in the financial year 2022 (FY2022). NSTP pix by Mohd Kamil Rahim

KUALA LUMPUR: Semiconductor-based SilTerra Malaysia, post-acquisition by Dagang NeXchange Bhd (DNeX) and its Chinese partner, is expected to register a net profit of RM158.6 million in the financial year 2022 (FY2022).

This would rise further to RM202.3 million and RM223.0 million net profits in FY2023 and FY2024 respectively, according to Hong Leong Investment Bank Bhd (HLIB) analysts Jeremy Yap and Tan J. Young.

SilTerra posted net losses of RM20.2 million, RM172.1 million and RM64.6 million in FY2018-2020 respectively, based on checks by HLIB.

DNeX completed its acquisition of a 60 per cent stake in SilTerra for RM163.8 million on July 26 last year, while the remaining 40 per cent was bought by Beijing Integrated Circuit Advanced Manufacturing and High-End Equipment Equity Investment Fund (CGP).

DNeX and CGP bought the loss-making semiconductor unit from Khazanah Nasional Bhd for RM273 million cash

Post-acquisition, HLIB had highligted that SilTerra SilTerra turned into the black, registering profits of RM21.2 million in merely two months from August to September 2021.

SilTerra had secured two huge contracts, said Yap and Tan, who initiated coverage on DNeX with a "highly convicted Buy" call and target price RM1.35.

One is a long-term multi-year wafer supply and purchase agreement in August 2021 with ChipOne Technology (Beijing) Co Ltd worth over US$400 million or about RM1.69 billion/

The other is a multi-year wafer supply and purchase agreement in November 2021 with ILI Technology Corp (Ilitek) with an undisclosed contract value and duration.

Ilitek is a leading touch controller and driver integrated circuit (IC) fabless design house in Taiwan.

SilTerra and Ilitek will collaborate on technology development and wafer fabrication targeting touch controller and display driver IC for industrial and home appliances markets.

"We are comforted by the contract wins above as these would help SilTerra to ensure a sustainable growth going forward."

They expect increasing average selling prices and expanding margins for SilTerra.

"Due to current macroeconomic condition where the world is going through a major semiconductor shortage, SilTerra is taking the opportunity to leverage on the tight supply situation by increasing its product (mainly wafers and mask layers) selling prices," they said.

This would help bolster DNeX's performance in upcoming quarters, they said, adding that the group also aimed to venture into a vertically enhanced product mix i.e. Silicon Photonics and MEMS, which will improve profit margins by three times.

Yap and Tan said DNeX's target price of RM1.35 was pegged on the company's technology segment to a calendar year 2023 price earnings forecast of 25 times, a slight discount to its global peers weighted average forward P/E of 26x.

"While we understand that SilTerra is a relatively small player in this space and has a relatively promising technology versus its listed global peers, we believe that valuation is justified as we are expecting SilTerra to grow faster than peers, with a growth of 28 per cent (versus weighted average of 23 per cent for its global peers).

"At about 14x FY23 earnings in its entirety, we believe that DNeX is a compelling case given its strong foothold in both the semiconductor and energy spaces," they noted.

https://www.nst.com.my/business/2022/01/764115/bumper-profits-dnexs-silterra-fy2022-2024

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