Inter-Pacific downgrades Datasonic to ‘Neutral’ on lower passport sales


INTER-PACIFIC Research Sdn Bhd has downgraded Datasonic Group Bhd to ‘Neutral’ from its previous ‘trading buy’ call with a lower target price of RM1.20 against RM1.37, following adjustments to assumptions on contract deliverables.

“We lower our financial year ending March 31, 2021, forecast (FY21F) earnings estimate down sharply by 69% as we revise our sales forecast to incorporate lower deliverables of contracts, most notably those relating to e-passports.

“Virus fears may continue to mute demand, but we increase our earnings expectations for FY22 by 13%, assuming an increase in passport deliveries due to backlog orders,”

Inter-Pacific Research analyst Daryl Law said in a note yesterday.

Datasonic’s net profit for the first quarter ended June 30, 2020 (1Q21), plunged 65.9% to RM4.77 million from RM14.01 million last year, while revenue fell 32.4% to RM39.4 million from RM58.32 million previously.

This came, as the company was unable to supply passports due to the various phases of the Movement Control Order (MCO).

Nonetheless, it declared a first interim dividend of 0.5 sen per share in respect of the financial year ending March 31, 2021, due payable Oct 1, 2020.

Datasonic has said the various MCO phases implemented in Malaysia since March 18 due to the coronavirus outbreak are expected to have an impact on the group’s operations.

“The board expects the prospect for the coming quarters to be brighter in line with the national economic recovery phase and new business opportunities in the areas of public security, public health, and also e-commerce,” it said in a Bursa filing last Friday.

The group’s 1Q21 net profit was below Inter-Pacific’s and street consensus at 5% and 6% of full-year estimates respectively.

“The earnings miss was largely due to the impact of the MCO on international travel and the flow-on effect to passport renewal,” Law said.

The pandemic has reeled back demand for international travel, resulting in citizens staving off renewals of passports.

“Pre-MCO, management had guided recurring revenue contribution from the e-passport sales to be approximately RM166 million per annum or at a simple rate of RM44 million on quarter which has now fallen to zero, if not close to zero,” Law noted.

However, deliveries on MyKads will continue despite travel restrictions.

“1Q21 MyKad deliveries amounted to one million units that we estimate to contribute RM22 million to total sales, as opposed to last year’s deliveries of 700,000 units at circa RM15 million,” he added.

Shares of Datasonic closed 0.8% or one sen lower at RM1.31 yesterday, valuing the company at RM1.77 billion.