PETALING JAYA: Dagang Nexchange Bhd’s (Dnex) future growth prospects are expected to be positive, underpinned by its ventures in the front-end semiconductor and upstream energy spaces.
Its short-to-medium term growth will be supported by rising net average selling price per wafer of subsidiary Silterra Malaysia Sdn Bhd and elevated crude oil prices.
Its new Avalon Oil Development greenfield, which is up and coming in July 2024 would potentially quadruple subsidiary Ping Petroleum Ltd’s current output.
It also had inked a recent memorandum of understanding with Foxconn (Hon Hai Precision Industry Co Ltd) to develop a new 12-inch wafer fabrication plant to support its electric vehicles ventures.
That explains why Hong Leong Investment Bank (HLIB) Research is excited and upbeat about Dnex’s growth prospects in the coming years.
Based on that, it believes that at current levels, Dnex is trading at bargain valuation multiples of only 11-times and nine-times for financial years 2023 to 2024 respectively in its entirety – based on its conservative earnings forecast.
It believes Dnex is currently trading at unwarranted levels given its luminous growth prospects and the house maintains its “buy’’ call with an unchanged sum-of-parts-derived target price of RM1.69 per share.
It said the share price had plummeted recently despite its strong recent quarterly earnings performance.
This was due to a few key broad-based factors which had affected the stock market tremendously in recent months.
This includes the US Federal Reserve’s quantitative tightening measures that led to higher interest rates and cost of borrowing to lower demand for goods and services across the board in hopes of combating inflationary pressures.
Other than that, there are also market fears of a global synchronised economic recession.
The research house also adds that the tech sector may bear the brunt of trading volatilities in coming months and that Dnex will not be exempted from this broad-base selloff.
Dnex reported a core profit after tax and minority interest (Patami) of RM51.7mil for the third quarter ended March 31, 2022, bringing its nine months 2022 core Patami to RM144.4mil.
This is after adjusting its RM264.5mil gain from the acquisition of Silterra, including a RM11.5mil impairment loss on receivables and RM8.4mil in foreign exchange losses.