DNeX seen capable of winning jobs under Pakatan govt

This article first appeared in The Edge Financial Daily, on October 30, 2018.
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Dagang NeXchange Bhd
(Oct 29, 35.5 sen)
Maintain buy with a target price (TP) of 71 sen:
Dagang NeXchange Bhd’s (DNeX) 60% indirectly-owned subsidiary Innovation Associates Consulting (IAC) received a letter of award from the Accountant General’s Department of Malaysia for the maintenance of the Integrated Government Financial and Management Accounting System (iGFMAS). Note that iGFMAS is an accounting accrual system, which was implemented by DNeX for the federal government.

The contract tenure is for one year beginning Aug 10, 2018, and has a contract value of RM59.4 million. Recall that IAC is owned by DNeX’s 51%-owned subsidiary Genaxis.  

We are positive on the contract win as it proves that DNeX still has the capability to win contracts under the new Pakatan Harapan government. We note that DNeX was previously awarded the contract to implement the iGFMAS system with a contract value of RM151 million over a three-year period. We understand that the outstanding amount under the implementation contract is about RM104 million currently.

We believe the maintenance contract for iGFMAS may be further renewed after the first year. Furthermore, we note that the accrual accounting system may be adopted by the various state governments in Malaysia. It is currently only being used by the federal government.

We have increased our earnings forecasts for financial year 2018 (FY18), FY19 and FY20 by 1.5%/3.1%/0.5% after including the new maintenance contract in consideration assuming a four-month contribution in FY18 and an eight-month contribution in FY19.

We have increased our TP to 71 sen per share (previously 69 sen) based on sum-of-parts valuation after a revision of earnings estimates. We have maintained “buy” on DNeX, underpinned by better crude oil prices and continued growth in its trade facilitation services. Potential new contracts secured by its various businesses will present a further upside to the group. — TA Securities, Oct 29