This article first appeared in The Edge Financial Daily on January 30, 2019

Dagang NeXchange Bhd
(Jan 29, 25.5 sen)
Downgrade to hold with a lower target price of 29 sen: Dagang NeXchange Bhd (DNeX) has moved towards strengthening its IT business by setting up the Asian Single Window (ASW) ahead of the liberalisation of Malaysia’s National Single Window service (that is UCustoms) in September 2019 and acquiring Genaxis — an accounting-based consulting firm. The ASW is envisioned as a one-stop platform for custom related approval as well as providing DNeX an Asean+ platform with a presence in China, Thailand, and the Philippines. While we view these initiatives positively, we expect limited earnings contribution in the near term. Acquisition of Genaxis has led to higher overhead costs as we estimate DNeX’s operating expenditure (opex) rose 38% year-on-year to RM54 million in the first nine months of 2018 (9M18).

OGPC’s portable container system (PCS) installation project has been delayed due to backlogs in site preparation by the main contractor, Petro Teguh. We expect OGPC to deliver only 40 PCS units over 2018 and 2019 compared with 100 units agreed. Meanwhile, DNeX Oilfield remains in the red amid a poor order book replenishment and tight margins. Nonetheless, we expect its energy division to be back in the black owing to Anasuria’s contribution (via Ping). Management also expects to receive its maiden dividend from Ping in 2019; proceeds would go towards meeting its rising working capital requirements.

We lower 2018 earnings forecast by 30% to reflect the poor 9M18 performance and reduce 2019/2020 forecasts by 36%/35% to reflect delays in PCS project and higher opex. — BIMB Securities Research, Jan 29