PETALING JAYA : Datasonic Group Bhd
’s current below-mean valuation is attractive, given its strong cash flow generation and healthy yields.
RHB Investment Bank Bhd (RHB IB) said this in a report to clients that the security-based information and communications technology solutions provider’s earnings of RM47.5mil for the first half of financial year 2025 (FY25) met expectations on higher average selling prices (ASP) and iKad orders, offsetting lower volumes for other solutions.
The research house said it expects the contract extensions for identification document and passport solutions (expiring end-November 2024) to be awarded in the near term, given its solid track record and services.
RHB IB said Datasonic’s FY25 earnings outlook remained healthy on the back of sustained strong demand for its various government-related solutions and margin expansion stemming from ASP adjustments.
The current share price overhang from the absence of contract extensions for both its MyKad and passport-related solutions should ease once the extensions are secured, the investment bank added.
It also said the group’s recent proposed acquisition of a 51% equity interest in Innov8tif Holdings from Revenue Group for RM40mil with profit guarantees of RM2.5mil and RM3mil for FY25 and FY26 may look value-destructive on valuation grounds.
Meanwhile, the proposed free warrant of one-to-two existing shares to reward shareholders, as well as resolutions on employees stock option schemes and amendments to the constitution on directors’ written resolutions are slated for voting at its EGM on Dec 13.
RHB IB elaborated that risks to its targets include higher input costs, weaker-than-expected orders and the non-renewal of contracts.
