Dagang NeXchange Bhd
(March 15, 31.5 sen)
Maintain reduce with a target price (TP) of 25 sen: Dagang NeXchange Bhd (DNeX) expects its unit, Genaxis, and its National Single Window (NSW) trade facilitation business to remain the key earnings drivers for its information technology and e-services segment in financial year 2019 (forecast) (FY19F).

 
Genaxis and NSW together contributed RM170 million or 58% to the group’s revenue in FY18.

As at end-February, Genaxis has a tender book of RM700 million-RM800 million and a secured order book of RM130 million comprising maintenance and system integration projects under public accounting projects.

It expects NSW to remain a key sales driver in FY19F notwithstanding the concession’s expiry on Aug 31, 2019 in light of its potential extension.

The group projects stronger earnings from Ping Petroleum, driven by higher production volume in Anasuria following the enhancement of its oil recovery initiatives and additional crude lifting in 2019.

Ping has completed its first crude lifting for 2019 in Jauary. We expect Ping to deliver higher associates’ profit of RM29.5 million in FY19F (FY18: RM22 million).

Meanwhile, we expect DNeX’s drilling division to remain in the red due to lack of new contract wins. The division posted a wider net loss of RM3.7 million in FY18 (FY17: RM2.7 million).

In addition, DNeX is exploring the potential to monetise and unlock the value of its energy assets. For example, it is exploring the option to divest its 30% stake in Ping Petroleum, which has a carrying value of about RM200 million.

To recap, DNeX invested US$10 million for the stake in 2016. It is also looking to divest its 10% stake in a Bangladesh power plant, which has a carrying value of about RM4.6 million.

We see a challenging FY19F outlook for the group in view of declining crude oil prices, a weak recovery in oil and gas activities, and a decline in NSW transaction volume after the concession’s expiry in Aug 2019.

The pickup in PCS project deployment and higher crude oil price are potential upside risks to our call. Switch to MyEG for exposure to the technology sector. — CGSCIMB, March 15