KUALA LUMPUR (July 3): RHB Investment Bank Bhd raised its Datasonic Group Bhd share target price (TP) to 77 sen from 65 sen, after lifting the stock's price-earnings (P/E) ratio forecast to 18 times for financial year ending March 31, 2020 (FY20), from 15 times.

In a note today, RHB analyst Lee Meng Horng said RHB lifted security-based ICT solutions provider Datasonic's P/E ratio on improved investor sentiment and potential job wins in the near future. Lee, who maintained RHB's buy call for Datasonic shares, said the stock's five-year average P/E is 18.4 times. 

At Bursa Malaysia today, Datasonic shares rose three sen or 4.58% to 68.5 sen at 10:44am. Based on Datasonic shares' closing price at 44 sen on June 3, 2019 and yesterday's (July 2) 65.5 sen, the stock had risen 49% during the period. 
  
RHB's Lee said FY20 is expected to be a year of recovery for Datasonic, anchored by a strong orderbook, the resumption of orders for MyKad, and potential contract wins. 

"Sentiment on Datasonic has revived after the company reached the inflection point — clinching a contract extension for providing preventive maintenance services. We expect the improvement in sentiment to continue, with renewed optimism on top of an expected recovery year in FY20. This is anchored by a strong orderbook, resumption of MyKad orders, and potential contract wins. The fact that it secured a contract extension demonstrates its competence in providing such services to the government. 

"Following the contract extension, its total outstanding orderbook is now at RM772m — which is expected to anchor Datasonic’s earnings recovery in FY20, following a 42% contraction YoY in FY19 on the absence of MyKad orders. Also, MyKad orders resumed in 4QFY19, and this should continue in the upcoming quarters — as the NRD’s (National Registration Department) inventory level is currently low, at under 2 million pieces," he said.

Lee said more newsflow on government-related contracts are expected to be announced in the next one-two months. 
 
"As such, its (Datasonic's) orderbook may improve further with potential job wins such as Public Key Directory — (PKD) and Public Key Infrastructure (PKI)-related solutions. Management remains optimistic on the upcoming government-related project bids or requests-for-proposal related to foreign workers, immigration system upgrades, e-visas, as well as the facial recognition system," he said.