DNeX’s CAGR to rise 453% for 3 years

The projection is supported by higher wafers ASP, production volume and average crude oil prices 


DAGANG NeXchange Bhd (DNeX) three-year net profit compound annual growth rate (CAGR) is expected to grow 453% between financial year 2021 (FY21) to FY24. 

According to CGC-CIMB Securities Sdn Bhd analyst Mohd Shanas Nor Azam, this projection is supported by higher wafers average selling prices (ASP), higher wafers production volume on the back of new capacity expansion, higher average crude oil prices for Ping Petroleum Ltd as well as higher production volume at Ping on the back of its new capital expenditure (capex) programme. 

“DNeX also enjoys a lower effective tax rate given that SilTerra Malaysia Sdn Bhd has over RM12 billion as of July 2021 in unrecognised deferred tax assets that could be offset against its future profits,” he said in a research report. 

However, these forecasts all depend on contributions from emerging technology platforms and Ping’s Avalon oil field commercialisation. 

CGS-CIMB initiates its ‘Add’ rating on DNeX with a target price of RM1.60. 

“We ascribed a 10% standard operating procedures-discount due to its conglomerate structure. 

“The stock trades at an undemanding price-to-earnings (PE) valuation of 13.7 times calendar year 2023F (CY23F) PE or 37% to 44% discounts to Malaysian automated testing equipment (ATE) and outsourced semiconductor assembly and test (OSAT) means,” he said.

The bank forecasts that DNeX would have stronger earnings delivery in the coming quarters, an increase in institutional funds’ holdings, narrowing discount relative to Malaysian ATE and OSAT sectors, as well as increasing crude oil prices. 

Unfortunately, Mohd Shanas warned that the global tech sector may weaken, delays in new capacity expansion at SilTerra and capex programme at Ping and lower crude oil prices. 

With the joint acquisition with SilTerra and a 60% stake in Ping, there has been a new management team appointed where DNeX is now led by group MD Tan Sri Syed Zainal Abidin Syed Mohamed Tahir. 

“We expect both SilTerra and Ping to be the major growth drivers for the group, making up 87% to 88% of DNeX’s core net profits in FY22-24F,” he explained. 

The acquisition was completed on June 29 last year and it was worth RM314 million. 

This has made Ping a 90%-owned subsidiary of DNeX and the remaining 10% stake is held by its founders. 

“DNeX is well positioned to benefit from SilTerra’s turnaround, underpinned by ongoing semi chips shortages and structural shift towards More-than-Moore (MtM) devices. 

“SEMI projects global MtM wafers demand growing at a 10% CAGR in 2017 to 2023F driven by megatrends such as wireless 5G infrastructure, electric vehicles, artificial intelligence and machine learning.” 

Between FY22 and FY24, the bank expects SilTeerra to invest more than RM900 million capex. 

It aims to increase its mask layer (ML) capacity by 20% to 10m ML per annum by CY23F and Mohd Shanas expects SilTerra would secure two new long-term agreements in the first half of CY22FY. 

This exercise would take up 80% of its capacity.