Datasonic to reign on contract extension and new project awards

According to Inter-Pacific, Datasonic’s financial strength and work merits indicate the group could take on the large projects ahead


CONTRACT extension for existing projects and new awards are expected to drive earnings for IT service management company Datasonic Group Bhd in the next financial year (FY21).

Inter-Pacific Research Sdn Bhd said the IT company’s revenue will grow sharply with the completion of contracts due within the year in FY21.

“Most of Datasonic’s contracts come with an option to extend, hence, we are confident that Datasonic will be able to replenish its orderbook levels with a target renewal of RM250 million, based on recurring turnover from contracts currently on hand,” it said in a recent note.

The contracts include maintenance works, national identification (NID), passports, security and surveillance.

Inter-Pacific said Datasonic’s financial strength and work merits indicate the group could take on the large projects ahead.

“We expect income from smart-card personalisation to its non-government clients to remain steady with tepid growth, as the current climate for chip

cards look to have matured and interest on e-wallets as the new payment system is on the rise,” it said.

Accordingly, Inter-Pacific has ascribed a ‘Buy’ recommendation on Datasonic with a target price of RM1.37 based on a discounted free cashflow (DFCF) valuation model.

“We have not imputed potential project wins in our valuation as there could still be further delays in the awards, as the country continues to cope with the Covid- 19 outbreak.

“Nevertheless, we believe Datasonic is in a prime position to be awarded upcoming projects, given its past work history with the government and the cost savings it can provide due to its integrated operations,” it said.

Shares of Datasonic have been on the uptrend over the past one month, having risen from 91 sen on April 13. Year-to-date, its lowest share price hit 57 sen on March 19, while its highest peaked at RM1.67 on Jan 24. The counter closed five sen lower at RM1.22 yesterday.

“The recent rally in Datasonic’s share price is attributed to investor optimism over the potential National Integrated Immigration System (NIISe) contract award that will be highly accretive to Datasonic’s earnings for the foreseeable future, due to be awarded in May or June,” Inter-Pacific said.

It explained further project wins will be highly earnings accretive, giving a greater upside to its share price.

“Based on our preliminary calculations and assuming Datasonic is awarded the NIISe contract that is valued at RM1.2 billion and potential profit after tax margin of 20%-25%, this could provide for circa 4.2 sen in additional earnings per share per year for the next 4.5 years.

“This could bring our DFCF valuation to an estimate of RM1.58 per share. This valuation also excludes a maintenance contract to commence after the 4.5 years, that management estimates to be valued at RM180 million — RM216 million per year,” it said.

Datasonic’s outstanding orderbook stands at RM611.1 million as of April, and it is looking to tender for several potential local projects that are to be awarded within the next 12 months.

Other projects include the one-stop centre for visa application in China, foreign visa application system, electronic medical record and digital ID.

Datasonic is one of the country’s largest security-based ICT solutions providers. The group is best known for its provision and personalisation for highly secure NID cards and supply of e-passport chips, polycarbonate data pages, passport booklets, and related NID and passport printing systems to the government.

Other operations of Datasonic include the provision of large-scale customised software and hardware systems for secure identification and total smart card solutions to the financial sector.