HAVING climbed 27% year-to-date, Hong Leong Investment Bank (HLIB) Research remains upbeat over Dagang Nexchange Bhd’s (DNeX) prospects as it is convinced that the semiconductor-based company should register uninterrupted back-to-back quarterly earnings growth over the next 12 months.
This will come on the back of (i) SilTerra Malaysia Sdn Bhd’s surging product average selling prices (ASPs); (ii) increasing wafer shipments; and (iii) higher realised prices for Ping Petroleum Ltd (90% owned by DNeX) due to soaring Brent crude oil prices.
“At only about 16 times FY6/2023F (FYE June) earnings in its entirety, we believe that DNeX is a compelling case given its strong foothold in both the front-end semiconductor and upstream energy spaces,” opined analysts Jeremie Yap and Tan J Young in a company update.
“We maintain our highly convicted “buy” recommendation for DNeX with an unchanged target price of RM1.35/share based on sum-of-parts (SOP) valuation.”
From its checks through the grapevine, HLIB Research further gathered that DNeX could be in the running to secure two more long-term agreements (LTAs) possibly in 1Q CY2022.
“Based on our understanding, it would be somewhat similar to contracts that the group has nailed with ChipOne Technology and ILI Technology (Ilitek) where DNeX will be entering into a multi-year long-term wafer supply agreement with its clients,” noted the research house.
“Currently, both the existing LTAs with ChipOne and Ilitek are taking up 65% of SilTerra’s capacity and from recent news flows, we gather that the group is planning to have circa 80% of its capacity tied to LTAs.”
Earnings-wise, HLIB Research expects the risk to be tilted towards the upside as it has conservatively assumed that (i) net ASP per wafer to be at US$500 for FY2022, FY2023 (US$550) and FY2024 (US$578); and (ii) Brent crude oil price assumption of US$70/barrel for FY2022 and US$65/barrel for FY2023 (YTD, Brent crude oil price averaged at US$78/barrel for the July 1, 2021 to Feb 9, 2022 period).
At the close of today’s mid-day trading, DNeX was up 1 sen or 0.98% to RM1.03 with 53.54 million shares traded, thus valuing the company at RM3.25 bil. – Feb 10, 2022
