KUALA LUMPUR (March 25): Hong Leong Investment Bank (HLIB) Research foresees Dagang NeXchange Bhd (DNeX) registering uninterrupted back-to-back quarterly earnings growth over the next six to nine months on the back of Silterra’s surging product average selling prices (ASPs), increasing wafer shipments and soaring crude oil prices.
HLIB analysts Jeremie Yap and Tan J Young said in a note they came away feeling positive from a private meeting with DNeX during their site visit to Silterra’s wafer foundry earlier this month.
“From our check with the management, we gathered that wafer ASPs had continued to increase. The group reiterated that the net ASP per wafer was still on an uptrend and is expected to peak in 4QFY22 (the fourth financial quarter ending June 30, 2022) and hover at about US$600 (about RM2,531.10) to US$625 in FY22 to FY23,” they said.
They also highlighted that DNeX would be a major direct beneficiary of higher oil prices amid the Russia-Ukraine conflict.
“Soaring crude oil prices throughout 3QFY22 would directly benefit its 90%-owned Ping Petroleum via its oil-producing assets in Anasuria,” they said.
At the analysts' time at writing, Brent crude averaged at about US$96 per barrel year-to-date (YTD), which was significantly higher than its 2QFY22 realised price of US$71 per barrel.
According to the analysts, DNeX is targeting for Ping's 100%-owned Avalon oilfield (greenfield) to produce its first oil in July 2024.
Based on findings, it was gathered that the Avalon oilfield will potentially more than quadruple Ping’s output from about 2,300 barrels of oil equivalent per day (boepd) to about 9,000 to 10,500 boepd, based on internal estimates, boosting Ping’s earnings by three to four times.
The analysts also highlighted that the group is planning for another expansionary capital expenditure (capex) of US$150 million to US$200 million at the end of 2022 to ramp up production of emerging technology (MEMS and silicon photonics) to about 10% of its total capacity.
“The capex will entail a new building, an extension of Silterra’s existing plant in Kulim. The group aims for the new plant to be operational in early 2024,” the analysts said.
However, they maintained their DNeX earnings forecasts for FY22 and FY23 at RM173 million and RM211.7 million respectively as they kept their conservative assumptions for the net ASP per wafer to be at US$500 in FY22, US$550 in FY23 and US$578 in FY24.
The analysts also maintained their Brent oil price forecast of US$80 per barrel for FY22 (YTD: US$82 per barrel).
“Note that we are conservative in our assumptions for both of the group’s divisions, indicating significant upside risks to our earnings forecasts,” they said.
DNeX registered a record-high quarterly core profit after tax and minority interest (PATAMI) of RM62.5 million for 2QFY22, bringing its first-half core PATAMI to RM92.7 million.
According to Yap and Tan, the group’s strong performance was mainly attributed to Silterra’s strong net ASP per wafer at US$527 in 2QFY22.
The analysts maintained their highly-convicted "buy" recommendation for DNeX, with an unchanged target price of RM1.64 per share.
“We peg Silterra’s multiple to 30 times price-earnings to reflect monumental growth prospects for the semiconductor foundry over the next few quarters,” they said.
Currently at only about 15.5 times FY23 forecast earnings in its entirety, the analysts believe that DNeX is a compelling case given its strong foothold in both the front-end semiconductor and upstream energy spaces.
At 10.01am on Friday (March 25), DNeX had risen two sen or 1.92% to RM1.06, valuing the group at RM3.28 billion. YTD, the counter has risen 30.86%.