KUALA LUMPUR: CIMB Equities Research is retaining its Add call for Dagang Nexchange
(DNeX) with a higher sum-of-parts based target price of 75 sen following its maiden foray into downstream retail oil & gas. The last traded price was 59 sen.
The research house said on Friday DNeX’s unit OGPC secured a two-year contract to supply up to 100 units of portable container system (PCS) for mini pump stations nationwide.
“The group expects the value of the PCS contract to range RM50mil to RM70mil. We are positively surprised by the news as the PCS supply contract creates a new earnings driver in the downstream retail oil & gas sector from OGPC,” it said.
CIMB Research raised its earnings per share (EPS) for FY17-19F by 1%-7%. It expects the group to record a stronger FY16-19F net profit CAGR of 16%.
To recap, DNeX announced that OGPC has been awarded a tagged the job from Petro Teguh Sdn Bhd (PT) to supply of up to 100 PCS for petroleum products.
The PCS, a self-contained modular fuel storage and dispensing unit, is targeted to be used for the supply of petrol at fish landing jetties nationwide.
The group expects to supply about 30 PCS units in 2017 and the remaining 70 units in 2018.
The contract is for the design, engineering, construction, installation and maintenance of the PCS units.
The group expects the contract value to range between RM50m and RM75m, as the contract price for a pump station with single storage is RM500,000 per unit per site, while the contract price for a PCS station with double storage is RM750,000 per unit per site.
Each PCS station will have a storage capacity that will be based on the requirement of the location and the captive market it is designed to serve.
Apart from being a new venture for DNex, it said the new venture will create a new revenue stream for the company.
“Moreover, we see potential for additional PCS contracts in the future given that PT is also managing a growing network of nationwide mini pump stations located in the suburb and rural areas.
“We raise our FY17-19F EPS by 1-7 % to account for the new PCS contract, but expect the majority of the revenue to be recognised in FY18F.
“We expect DNeX to record a robust FY16-19F net profit 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% p.a. (vs. 13% growth for the IT division), driven by new contracts from OGPC and higher crude oil volume production from Ping Petroleum.
“DNeX trades at 15 times FY18F P/E, in line with its historical five-year mean. New contracts for vehicle entry permit (VEP) and road charges (RC) systems at the Thai borders, and higher crude oil prices are potential re-rating catalysts for the stock.
“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 delay in VEP & RC contract awards,” said CIMB Research.
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