DNeX to have a strong presence in the semiconductor and energy spaces

DNeX to have a strong presence in the semiconductor and energy spaces

20 Jan 2022

This is following a slew of corporate exercises the company have undertaken in 1H21 

DAGANG Nexchange Bhd (DNeX) has transformed itself into both a semiconductor front-end player or foundry and an upstream oil and gas producer in the UK North Sea region following a slew of corporate exercises in the first half of 2021 (1H21). 

Hong Leong Investment Bank (HLIB) Research analysts Jeremie Yap said the group’s historical financial performance to be a premature representation of its future performance as the group has ushered in a new management team along with the acquisitions of new assets. 

On July 26, 2021, DNeX acquired 60% SilTerra Malaysia Sdn Bhd and an additional 60% of Ping Petroleum Ltd on June 30, 2021, — of which profits would only be reflected in the financial year 2022 (FY22) onwards. 

“Based on our findings, we understand that SilTerra Malaysia registered loss-after-tax of RM20.2 million, RM172.1 million and RM64.6 million in FY18-20, respectively. Post-acquisition by DNeX and Beijing Integrated Circuit Advanced Manufacturing and High-End Equipment Equity Investment Fund Center (Limited Partnership), we highlight that SilTerra has turned into the black, registering profits of RM21.2 million in merely two months (August-September 2021). 

“We are projecting SilTerra’s FY22-24F net profit to grow further to RM158.6 million, RM202.3 million and RM223 million, respectively, representing a FY22-24F compound annual growth rate (CAGR) of 19%. Going forward, the group also aims to venture into a vertically enhanced product mix such as silicon photonics and MEMS, which will improve profit margins by three times,” Yap said. He added that the research firm is forecasting impressive earnings growth.

“We are projecting DNeX’s core profit after tax and minority interests to grow to RM155.2 million, RM197.8 million and RM271.5 million for FY22-24F, respectively, representing a CAGR of 32%. 

“This will be driven by the 60% acquisition of SilTerra which was completed in July 2021, average selling price hikes by SilTerra, increased stake in Ping to 90% (from 30% previously) — which will consolidate Ping’s financial performance into the group’s as it is now a subsidiary and increasing oil production from the Ping’s 50%owned Operating Co (Anasuria),” he added. 

He added that Anasuria assets to be a valuable cash cow. 

“With low operating expense (opex) per barrel of less than US$20 (RM84), we estimate the unit’s cash-breakeven crude oil price to be at about US$25 per barrel — based on our calculations. 

“In the event of an oil price crash, we are comforted by the fact that these low cash opex levels provide shelter from going into deep operating loss,” said Jeremy. 

HLIB initiated ‘Buy’ recommendation and a stock option planderived target price of RM1.35 per share. 

“At about 14 times FY23F earnings in its entirety, we believe that DNeX is a compelling case given its strong foothold in both the semiconductor and upstream energy spaces,” Yap said. 

Source: The Malaysian Reserve