Friday 29 Mar 2024
By
main news image

This article first appeared in The Edge Financial Daily on November 22, 2018

Dagang NeXchange Bhd
(Nov 21, 35 sen)
Downgrade to hold with a lower target price (TP) of 40 sen:
Dagang NeXchange Bhd (DNeX) posted a quarter-on-quarter (q-o-q) higher core net profit of RM9.2 million for the third financial quarter ended Sept 30, 2018 (3QFY18) after excluding a RM3.6 million impairment loss on goodwill, versus an RM8 million core net profit for 2QFY18.

The group attributed the q-o-q increase in earnings to narrowing losses from the energy division and higher earnings from its 30%-owned associate Ping Petroleum on the back of higher crude oil prices.

Revenue for 3QFY18 rose 24% q-o-q mainly due to maiden contributions from the submarine cable installation and repair project in Indonesia.

Revenue for the cumulative first nine months ended Sept 30, 2018 (9MFY18) surged by 30% year-on-year (y-o-y) to reach RM185.6 million, driven by higher contributions from Genaxis and the submarine cable installation project.

Nevertheless, energy division revenue fell by 20% y-o-y due to a weak recovery in domestic oil and gas (O&G) activities. As a result, the group reported a wider operating loss for its energy division.

Moreover, DNeX also incurred higher depreciation expense and minority interest following the consolidation of Genaxis.

Overall, the group’s core net profit fell by 18% y-o-y to RM34.7 million.

OGPC Sdn Bhd and DNeX Oilfield Services Sdn Bhd continued to face intense competition and margin pressure in the energy division due to soft market conditions. We expect these operating energy units to record wider losses for FY18.

Despite these setbacks, DNeX is poised to benefit from stronger contributions from Ping. Ping recorded a 69% y-o-y pre-tax profit growth in 9MFY18, driven by higher sales volume and crude oil prices.

We have cut our FY18 to FY20 earnings per share forecasts by 22% to 30% to account for lower contributions from the energy division following a lack of new contract wins and delays in the implementation of the portable container system project.

We have also raised our operating expenditure assumptions to reflect start-up costs for the submarine cable installation and accrual accounting projects.

We have downgraded the stock to “hold”, with a lower sum-of-parts-based TP of 40 sen.

We see a challenging outlook for the group for FY19 in view of declining crude oil prices, a weak recovery in O&G activities and a decline in the National Single Window’s trade facilitation transaction volume after the expiry of its concession in August 2019.

New marine fibre contract wins and higher crude oil prices are potential rerating catalysts. — CGSCIMB Research, Nov 20

      Print
      Text Size
      Share