HLIB initiates coverage of DNEX (4456) DAGANG NEXCHANGE BHD with 'buy' call, RM1.35 target price

HLIB initiates coverage of DNEX (4456) DAGANG NEXCHANGE BHD  with 'buy' call, RM1.35 target price

KUALA LUMPUR (Jan 19): Hong Leong Investment Bank (HLIB) initiated coverage of Dagang NeXchange Bhd (DNeX) with a "buy" call and target price (TP) of RM1.35 on Wednesday (Jan 19).

At RM1.35, the stock would be at a 49.17% premium to its current share price of 90.5 sen.

Notably, DNeX was the top traded stock on Bursa Malaysia on Wednesday morning, with 99.17 million shares changing hands.

In a research note, the investment bank said its TP was derived from sum-of-parts valuation.

"We peg DNeX's technology segment to a forecast 2023 price-earnings (P/E) ratio of 25 times, which is a slight discount to its global peers' weighted average forward P/E of 26 times.

"While we understand that [SilTerra Malaysia Sdn Bhd] 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 expect SilTerra to grow faster than its peers with a growth of 28% (versus a weighted average of 23% for its global peers).

"At about 14 times FY23F earnings (for the financial year ending June 30, 2023) in its entirety, we believe that DNeX is a compelling case given its strong foothold in both the semiconductor and energy spaces," HLIB noted.

DNeX holds a 60% stake in SilTerra. It acquired the stake from Khazanah Nasional Bhd last July.

"We project SilTerra’s FY22-24F net profit to grow further to RM158.6 million, RM202.3 million and RM223 million respectively, representing a FY22-24F compound annual growth rate (CAGR) of 19%. Going forward, the group also aims to venture into a vertically enhanced product mix, i.e. silicon photonics and MEMS (the micro-electromechanical system), which will improve profit margins by three times."

According to HLIB, DNeX has transformed itself into both a semiconductor front-end player and foundry, as well as an upstream oil and gas producer in the UK North Sea region with the acquisition of an additional 60% stake in Ping Petroleum Sdn Bhd in June last year, boosting its total stake to 90%.

The investment bank also noted that profit from SilTerra and Ping Petroleum will only be reflected in FY22.

Ping Petroleum has a 50% stake in the Anasuria cluster in the North Sea.

According to DNeX group managing director Datuk Seri Syed Zainal Abidin Syed Mohamed Tahir, it is estimated that the Anasuria cluster has proved and probable (2P) reserve of approximately 26.6 million barrels of oil equivalent.

"With low operating expense (opex) per barrel of less than US$20 (about RM83.83), we estimate the unit’s cash-break-even crude oil price to be at about US$25 per barrel. In the event of an oil price crash, we are comforted by the fact that these low cash opex levels would provide shelter from going into deep operating loss.

"With that, we deem the Anasuria assets to be a valuable cash cow. Meanwhile, we estimate the unit’s break-even price to be at about US$45 per barrel at the net level," said HLIB.

Looking forward, the investment bank is projecting that DNeX's core profit after tax and minority interests (PATAMI) will expand by RM155.2 million, RM197.8 million and RM271.5 million for FY22-24F respectively, representing a CAGR of 32%.

The growth in PATAMI will be underpinned not only by the acquisitions of stakes in SilTerra and Ping Petroleum, but also SilTerra's higher average selling prices and increasing oil production from the Anasuria assets, HLIB noted.

http://www.theedgemarkets.com/article/hlib-initiates-coverage-dnex-buy-call-rm135-target-price