DNeX expects earnings to recover in FY19

CIMB Equities Research is retaining its add call for Dagang NeXchange (DNex) but with a lower target price (TP) of 53 sen.

KUALA LUMPUR: Dagang Nexchange (DNeX) expects earnings to recover in FY19F, driven by higher portable container system (PCS) project and an increase in crude oil production at Ping Petroleum.

CIMB Research said on Friday the company was exploring options to monetise and unlock the value of its energy assets.

“Maintain Reduce, with an unchanged 25 sen sumn-of-parts based target price,” it said in a research note following a meeting with the management following the recent release of its FY18 results.

It said DNeX was cautiously optimistic for a stronger earnings delivery in FY19F (vs. FY18), driven by higher completion of its PCS project which has been delayed since 2017. It targets to deliver 40 units of PCS in FY19F.

DNeX expects its subsidiary Genaxis and its National Single Window (NSW) trade facilitation business to remain the key earnings drivers for its IT and e-services segment in FY19F. 

Genaxis and NSW together contributed RM170mil or 58% to group revenue in FY18. As at end-February, Genaxis has a RM700mil to RM800mil tender book and a secured order book of RM130mil comprising maintenance and system integration projects under public accounting projects. 

DNeX expects NSW to remain a key sales driver in FY19F notwithstanding the concession's expiry on Aug 31, 2019 in light of its potential extension.

“The group projects stronger earnings from Ping Petroleum, driven by higher production volume in Anasuria following the enhancement of its oil recovery initiatives and additional crude lifting in 2019. Ping has completed its first crude lifting for 2019 in January. 

“We expect Ping to deliver higher associates’ profit of RM29.5mil in FY19F (FY18: RM22mil). Meanwhile, we expect DNeX's drilling division to remain in the red due to lack of new contract wins. The division posted a wider net loss of RM3.7mil in FY18 (FY17: RM2.7mil),” it said.

In addition, DNeX is also exploring the potential to monetise and unlock the value of its energy assets. For example, it is exploring the option to divest its 30% stake in Ping Petroleum, which has a carrying value of about RM200mil. 

To recap, DNeX invested US$10mil for the stake in 2016. It is also looking to divest its 10% stake in a Bangladesh power plant, which has a carrying value of about RM4.6mil.