CIMB Research upbeat on Dagang NeXchange outlook


  • Analyst Reports,Corporate News
  • Friday, 16 Mar 2018

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

KUALA LUMPUR: CIMB Equities Research is upbeat on Dagang Nexchange’s (DNeX) outlook for FY18, driven by potential new earnings from Genaxis and projected stronger earnings delivery by OGPC and Ping Petroleum.

The research house said on Friday DNeX’s management is also exploring potential new merger and acquisition activities to drive earnings growth beyond FY18F.  

“We expect DNeX to record a robust FY17-20F net profit compounded annual growth rate (CAGR) of 15%, driven by resilient earnings growth in both its IT services and energy divisions.

“DNeX trades at 10.5 times 2019F fully diluted P/E, below its five-year mean of 12 times. Maintain Add with an unchanged sum-of-parts based 71 sen target price,” it said.

CIMB Research met DNex's management on Thursday morning to discuss its 4Q17 results and 2018 outlook. 

The group remains bullish on delivering stronger earnings growth in FY18F on the back of potential earnings contribution from its Genaxis acquisition, extension of its National Single Window (NSW) concession, and higher completion for its portable container system (PCS) project by OGPC. 

Overall, the group is looking to leverage its expertise in IT services and energy divisions to grow additional revenue streams. 

Management expects immediate earnings contribution from Genaxis upon completion of its acquisition in 2Q18. 

To recap, DNeX is acquiring 51% stake in Genaxis, a consulting firm that delivers training and consulting services to the public and private sectors, for RM10m cash.

 Genaxis also has a 61% stake in Innovation Associates Consulting (IAC), the largest SAP distributor in Malaysia and contractor for accrual accounting system for the federal government.  IAC has an outstanding order book of over RM200m.    

 In addition, the group expects OGPC to recognise a higher sales and earnings contribution from the PCS contract in FY18F, following disappointing completion in 2017. 

DNeX targets to deliver at least 50 units of PCS in FY18F (vs. seven units in FY17). Moreover, the group expects its loss-making DNeX oilfield services to be profitable in FY18F, driven by a new equipment leasing contract with Baker Hughes.    

“Apart from that, we also expect stronger profit contribution from DNeX’s 30%-owned associate Ping Petroleum (Ping) in FY18F, driven by improving crude oil price outlook and additional crude lifting for its Anasuria field due to the absence of a major maintenance shutdown.

“We also understand that Ping is exploring potential asset acquisitions to drive new growth,” itsaid.

CIMB Research said DNeX’s share price has fallen almost 16% year-to-date. 

“We see the pullback in its share price as offering an attractive buying opportunity given that the stock currently trades at an attractive 10.5x 2019F fully diluted P/E, below its five-year mean P/E of 12x. 

“We expect DNeX to record a robust FY17-20F net profit CAGR of 15%, driven by resilient earnings growth in both its IT services and energy segments.

“We make no changes to our earnings forecasts and maintain our Add rating on the stock, with an unchanged SOP-based TP of 71 sen. 

“We see the completion of the Genaxis acquisition, the award of new vehicle entry permit (VEP) & road charges (RC) contracts, and higher crude oil prices as potential re-rating catalysts for the stock. Key downside risks to our Add call are lower crude oil prices and delays in new VEP & RC contract awards,” said the research house.
 

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