Dagang NeXchange bullish on 2018 outlook

  • Analyst Reports
  • Friday, 22 Dec 2017

KUALA LUMPUR: Dagang Nexchange (DNeX) remains bullish on stronger FY18 earnings growth, driven by higher growth from IT services, says CIMB Equities Research.

It said on Friday that underpinning the positive outlook was the extension of its National Single Window (NSW) concession, stronger revenue from its vehicle entry permit and road charges (VEP & RC) project, and higher completion for its portable container system (PCS) project. 

“However, it indicated that outlook for its energy unit remains challenging due to intense competition,” it said.
Recall that on Dec 20,   DNeX announced its NSW concession to provide trade facilitation services to the Customs Department was been extended to August 2019.

To recap, the NSW concession was due to expire in Sep 2018. This concession remains a major earnings driver for the group; it accounted about 45% of DNeX's net profit in FY16. 

“We understand that the alternative platform for NSW is still facing integration issue, hence DNeX could still receive further extension beyond 2019F. 
“The group highlighted that recognition for the remaining 20% of its first VEP & RC project at the Singapore-Malaysia border will be delayed from 4Q17 to 1H18 due to timing issues. 

“However, DNeX will recognise the RM21mil operation and maintenance contract for the VEP & RC in FY17,” it said.

CIMB Research said the company also expects to start delivering the radio frequency identification (RFID) VEP tag for foreign vehicles in 1Q18.
DNeX expects to deliver 500,000 units in 2018. This will bring in additional RM7.5mil or 3% to group revenue in FY18F.    

“We cut our FY17F EPS by 2.6% to account for the delay in the remaining VEP & RC contract recognition, but raise our FY18-19F EPS by 2.9-4.4% to reflect the extension of its NSW concession.

“Moreover we expect stronger earnings contribution from OGPC on the back of higher PCS contract completion, and higher associate’s profit contribution from Ping Petroleum on the back of higher crude oil prices. 

“Overall, we project DNeX to record a robust FY16-19F net profit CAGR (compounded annual growth rate) of 18%,” it said. 

CIMB Research pointed out DNeX expects to see maiden revenue contribution from its 1Trade platform in 2H18. 

Trade, a web-based portal for cargo and trade management, was launched in October 2017, targeting exporters, importers and logistics service providers. It aims to converge supply chain and cross border logistics processes to simplify cargo and trade management by leveraging data from the NSW platform.

“Maintain Add and target price of 74 sen.  The extension of the NSW concession 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, and decline in NSW transaction volume post-expiry of its concession in September 2019F,” it added.

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