KUALA LUMPUR (July 20): MIDF Research has initiated coverage on Datasonic Group Bhd at 47 sen with a "buy" rating and target price of 57 sen. The research house said the valuation was derived by pegging its FY23F core earnings per share of 2.94 sen to the five-year average mean PER of 19.5 times.

In a note on Wednesday (July 20), MIDF said Datasonic is sitting on a net cash pile of RM114.7 million as of FY22, with a compound annual growth rate (CAGR) of +55.3% over the last four years from FY19 to FY22.

It said the gearing is almost non-existent at 0.1% as of FY22, which bode well to the group’s balance sheet, allowing it ready access to liquidity.

MIDF said the group has stated that it will not further enhance its pioneer business activities of card personalisation services due to flattish growth as more and more local players enter the market.

“Instead, Datasonic plans to utilise the cash pile into digital ID security segments, in tandem with digitalisation era.

“We think the readily strong cash position will give the group extra advantage to explore the growing market which is more capital intensive as well as allowing the group to stay competitive in producing cutting-edge security technology,” it said.

MIDF said it anticipates Datasonic’s earnings to grow at a CAGR of 106.9% over FY22A-FY25F.

“This is mainly driven by the pent-up demand for passports due to the lifting of travel restriction as well as outstanding expired and non-renewed Malaysian passports, of approximately 4.5 million.

“We think Datasonic could deliver another 2.5 million to 3.0 million units of passports over FY23F-FY25F, converting into sales of RM175 million to RM210 million respectively.

“Moving forward, we remain optimistic that the group could secure, among others, the new generation of MyKad contracts as well as the NDID projects which are expected to roll out soon, on the back of their sturdy orderbook, proven track record of winning government’s projects as well as competitive advantage in terms of their high quality of security product features and services,” it said.