PETALING JAYA: The prospects of Dagang Nexchange Bhd (DNeX) look attractive, given its strong foothold in both the semiconductor and energy space, according to Hong Leong Investment Bank (HLIB) Research.
Following a slew of corporate exercises in the first half of 2021 that ushered in a new management team and business direction, the group has transformed into a semiconductor front-end player/foundry and an upstream oil and gas (O&G) producer in the United Kingdom’s North Sea region.
In July 2021, DNeX acquired a 60% stake in Silterra Malaysia Sdn Bhd for RM168.3mil cash from Khazanah Nasional Bhd.
Beijing Integrated Circuit Advanced Manufacturing and High-End Equipment Equity Investment Fund Center (CGP Fund) owns the remaining 40% stake in the nation’s largest chipmaker.
Silterra is involved in the manufacturing of semiconductor wafers and supplies multinational fabless and integrated device manufacturer companies.
In June 2021, DNeX also acquired an additional 60% stake in Ping Petroleum Ltd (an upstream O&G company), raising its holdings to 90%.
HLIB Research pointed out that profits from DNeX’s new assets would only be reflected in the financial year ending June 30, 2022 (FY22) onwards.
The research unit said post-acquisition by DNeX and CGP, Silterra had returned to the black, registering profits of RM21.2mil in two months (August and September 2021).
“We are projecting Silterra’s estimated net profit in FY22 to FY24 to grow further to RM158.6mil, RM202.3mil and RM223mil respectively, representing a FY22, FY23 and FY24 estimated compound annual growth rate (CAGR) of 19%,” said the research unit.
Going forward, Silterra also aims to venture into a vertically enhanced product mix such as silicon photonics and micro-electro-mechanical systems, or MEMS, which will improve profit margins by three times.
Silicon photonics is a technology where optical devices are fabricated by the mainstream microelectronic processing technology.
MEMS involves miniaturised mechanical and electro-mechanical devices and structures that are made using the techniques of microfabrication.
Meanwhile, regarding Ping Petroleum’s Anasuria assets, HLIB Research said with a low operating expense per barrel of less than US$20 (RM84), the unit’s cash-breakeven crude oil price is estimated by the research unit to be at about US$25 (RM105) per barrel.
The Anasuria cluster is located 175kms east of Aberdeen in the Central North Sea, the UK.
“In the event of an oil price crash, we are comforted by the fact that these low cash operating expense levels will provide shelter from going into deep operating losses.
“With that, we deem the Anasuria assets to be a valuable cash cow.
“Meanwhile, we estimate the unit’s breakeven price to be at about US$45 (RM188) per barrel on the net level,” said HLIB Research.
The research unit opined that DNeX would see impressive earnings growth and is projecting its core net profit to grow to RM155.2mil, RM197.8mil and RM271.5mil for FY22, FY23 and FY24 respectively, representing a CAGR of 32%.
HLIB Research said this would be driven by average selling price hikes by Silterra, and increasing oil production from the Ping Petroleum’s 50%-owned Anasuria.
The research unit has initiated coverage on DNeX with a “buy” call and RM1.35 per share target price, based on a sum-of-parts valuation.