Datasonic Group Bhd
(Oct 20 RM1.59)
Maintain buy with target price of RM2.10: We hosted Datasonic at Invest Malaysia in Hong Kong recently. Management shared potential initiatives going forward but cautioned near-term earnings could come under pressure on slower-than-expected MyKad orders. Thus, we cut our target price to RM2.10 from RM2.50 following an earnings revision.

Datasonic was previously involved in the installation of closed-circuit television security camera systems in Penang. Management is currently exploring opportunities to replicate this model in other parts of Malaysia to help combat crime.

This is in line with the government’s aim to reduce the incidence of house break-ins by 5% annually from 2013 to 2015, and to tackle vehicle thefts, which contributed to 43% of the total index crime in 2011.

Its 30%-owned associate Fuelsubs House Sdn Bhd is finalising its proposal on the fuel subsidy rationalisation programme.

Datasonic intends to leverage on its existing strength by implementing the programme via MyKad as the core platform.

This would help to minimise upfront investment costs as vehicle owners would be able to incorporate their fuel subsidy allocations into their MyKad.

On a side note, the Second Finance Minister Datuk Seri Ahmad Husni was recently quoted as saying that the proposed new mechanism for petrol and diesel subsidies has now been completed. We expect to hear more developments on this over the next couple of weeks.

Management cautioned that its earnings over the near term could come under pressure as orders for its MyKad delivery have slowed down since the first quarter ended June 30, 2014 (1QFY15).

Taking that into account, we cut our FY15F earnings per share by 23% and revise our FY16 forecast earnings per share (EPS) downward by 16% as we adopt a more conservative stance going forward. — RHB Research, Oct 20

This article first appeared in The Edge Financial Daily, on October 21, 2014.