This article first appeared in The Edge Financial Daily on July 15, 2019
Dagang NeXchange Bhd
(July 12, 29 sen)
Upgrade to hold with a higher target price (TP) of 30 sen: We attended Dagang NeXchange Bhd’s (DNeX) first quarter of 2019 (1QFY19) results briefing together with eight analysts and fund managers at the group’s headquarters in Cyberjaya recently. The briefing was hosted by group executive deputy chairman Datuk Samsul Husin and group chief financial officer Lim Kek Siang.
We were positively surprised by the group’s cautious optimism for a potential extension of its National Single Window (NSW) concession beyond August. DNeX said it was hopeful of a potential extension given the delay in the uCustoms platform implementation. DNeX had earlier been awarded a one-year NSW extension from September 2018 to August.
The group has hired a consultant to proceed with the potential divestment of its entire stake in Ping Petroleum Ltd, which is estimated to be worth about RM250 million. The amount would be at a 24% premium to Ping Petroleum’s book value on DNeX’s balance sheet as at end-December 2018, resulting in an RM208 million gain on disposal. DNeX’s shareholders could therefore benefit from a possible special dividend following the disposal.
DNeX plans to leverage its dominant position as an NSW platform provider by launching new products for the business community. For example, it has successfully commercialised a new business-to-business logistics solution after securing Petronas as its first customer.
In addition, DNeX plans to launch a new eScroll platform, targeting institutions of higher learning and corporations, using blockchain technology to address the problem of counterfeit educational certificates. The group targets 20% of the 800,000 new graduates in Malaysia annually registering on this platform.
We raise our forward financial year 2019 (FY19F) to FY21F earnings per share by 5% to 21% on higher contributions from IT services with the potential NSW concession extension. In addition, we were encouraged to learn that its portable container system (PCS) project installation is gaining traction. It has installed 12 PCS solutions in the first half of 2019 (1H19) and targets an additional 25 units to be installed in 2H19.
We upgrade the stock from “reduce” to “hold” in view of improving earnings prospects from the potential NSW extension. Following our earnings upgrade, we raise our sum-of-parts-based TP to 30 sen. New contract wins and higher crude oil prices are potential upside risks, meanwhile lower crude oil prices and lack of new contract wins are key downside risks. — CGSCIMB Research, July 11