DNeX making it work

Its relatively new management and ambitious plans have captured the attention of the investing public 

by AUFA MARDHIAH 

TECHNOLOGY, energy and IT solutions provider Dagang NeXchange Bhd (DNeX) is a transformation story in the making. Its relatively new management and ambitious plans have captured the attention of the investing public, though the stock is currently trading at “unwarranted levels given its luminous growth prospects”, suggested one local research house. 

DNeX is a compelling case, given its strong foothold in both the semiconductor and energy spaces, Hong Leong Investment Bank Bhd (HLIB Research) made its pitch when it initiated coverage on the stock in January 2022. 

It showcased DNeX as a local-based conglomerate with three core divisions. In technology, the company has a semiconductor foundry. In energy, the note remarked that it was “making its mark” in upstream exploration and production as well as equipment supply and maintenance. In IT, it is involved in provision of e-services for trade facilitation, technology consulting and systems integration, as well as subsea telecommunication services. 

On its part, BIMB Securities Sdn Bhd believes that DNeX offers a great exposure to rising semiconductor demand amid global mega-trend towards 5G technology and electric vehicle (EV). 

“We firmly believe that the company is capable of realising its plan to build a new 12-inch fab facility in Malaysia leveraging on the x-factor of its new management team,” it said in a report dated Oct 19, that gave a ‘Buy’ call on the stock with a target price of RM1.05. 

The stock price has corrected from recent high of RM1.33 as euphoria over high oil price and semiconductor chip shortage dissipated, it noted. Hence, it deems it is attractive to accumulate on the stock at current level. 

Semicon Player 

DNeX has emerged as a pure-play semiconductor player following its acquisition of a 60% ownership stake in SilTerra (M) Sdn Bhd, which was timed to coincide with worldwide migration to 5G and rising demand for EV and data centres. 

“Given its long-term plan to develop a new fab through a joint venture (JV) with Foxconn, we expect the company to gain from this megatrend. We believe the company will be able to carry out its ambitious plan thanks to a capable management team led by a prominent corporate figure as the group MD; the Malaysian government’s strong interest in developing its semiconductor ecosystem; and possible funding support from Middle Eastern investors (through JV with Ajlan & Bros Holding Group),” said the research house. 

In July 2021, DNeX completed the acquisition of an additional 60% stake in Ping Petroleum Ltd, to take its stake in the oil and gas (O&G) company to 90%. This makes Ping Petroleum a subsidiary of DNeX Energy Sdn Bhd, a wholly owned subsidiary of DNeX. Ping Petroleum has a portfolio of producing and developing O&G assets in the Anasuria Cluster located in the North Sea, UK in JV with Hibiscus Petroleum Bhd. 

The Ping Petroleum stake purchase was the second major investment for DNeX after it bought a 60% stake in semiconductor wafer company, SilTerra, for RM163.8 million from Khazanah Nasional Bhd in March. Beijing Integrated Circuit Advanced Manufacturing and High-End Equipment Equity Investment Fund Centre (CGP Fund) owns the remaining 40%. 

The SilTerra purchase was timely amid global network migration towards 5G and growing demand for EV and data centres which would require a higher amount of semiconductor content, said BIMB Securities. 

“We foresee the company to benefit from this megatrend given its long-term plan to build a new fab via a JV with Foxconn. While details remain scarce, we are optimistic that the company will be able to push ahead with its ambitious plan banking on (i) capable management team led by a prominent corporate figure ie, Tan Sri Syed Zainal Abidin Syed Mohamed Tahir as the group MD; (ii) strong interest by Malaysian government towards developing its semiconductor ecosystem, and (iii) possible funding support from Middle Eastern investors ie, through JV with Ajlan & Bros,” it said. 

Transformation efforts for SilTerra have led to a strong turnaround in the group’s financial performance due to higher average selling prices (ASP) achieved and operational improvements recorded in terms of production output, quality control and manufacturing- ing efficiency, DNeX said in an exchange filing when announcing its full-year results for 2022. 

It added that the expansion efforts to increase SilTerra’s annual production capacity by 10% was progressing well and is expected to be completed by the first half of 2023. As a result, it said more capacity will be allocated to new emerging technologies such as microelectromechanical systems (MEMS) and silicon photonics devices which command higher ASP. In addition, manufacturing costs are expected to reduce in line with economies of scale. 

For the financial year ended June 30, 2022, DNeX posted net profit of RM549.59 million on RM1.44 billion in turnover. 

Leadership 

The DNeX management is now helmed by Syed Zainal Abidin as its group MD since Oct 1, 2020. He came onboard the company in July 2020 as an independent non-ED. He is also the chairman of SilTerra. He was previously VP for downstream marketing at Petroliam Nasional Bhd (Petronas) and also served as MD of Petronas Dagangan Bhd. 

DNeX board is chaired by Tan Sri Abdul Rahman Mamat, previously secretary general of the Ministry of International Trade and Industry (MITI) from 2006 to 2010. 

On the management side, Syed Zainal Abidin is assisted by a number of experienced hands. They include Zainal ‘Abidin Abd Jalil as its ED for energy business division. Zainal ‘Abidin was previously Malakoff Corp Bhd CEO before a 28 years stint at ExxonMobil. Overseeing the numbers is Azhar Othman as the group CFO, who had previously taken on a similar role at large government-linked companies (GLCs) like Proton Holdings Bhd, UEM Sunrise Bhd and Johor Corp. 

National Single Window 

One trump card with DNeX is the National Single Window (NSW). DNeX has a core strength in IT e-commerce and system integration through its subsidiary, Dagang Net Technologies Sdn Bhd, which has operated NSW for the Malaysian government since the 1990s. The NSW is used to connect freight forwarders with various government agencies including customs for trade clearance. 

“Despite the government’s effort to migrate to an upgraded system named uCustoms, Dagang Net’s NSW services contract continues to be renewed by the government. This is due to the delay in uCustom implementation which arises due to the complexity in system integration between various agencies and ministries,” it said. 

DNeX said it has secured contract extension to operate NSW until Aug 31, 2024. In an exchange filing in August 2022, it noted that the Malaysian economy growth augurs well for its businesses in trade facilitation and technology consulting and systems integration. It said that its new trade facilitation-related service offerings especially in the business-to-business segment locally and in international markets were gaining traction and currently in the pilot implementation phase. 

National Single Window explained

WHAT is a National Single Window (NSW)?

An NSW is a customs portal where traders can submit all documents relating to trade and can access all relevant information regarding trade via a single electronic gateway. The portal connects the customs authority with all government agencies that deal with the movement of people or goods, including tax, immigration, quarantine, health, transport, agriculture, fisheries, foreign affairs and the central bank. 

How does NSW help traders?

Traditionally, when traders wish to import or export goods, they have to submit the same information numerous times to different government entities. Sometimes these documents have to be submitted electronically, sometimes by paper. This is time-consuming, often costly, increases the chance of making mistakes and makes the process of trading difficult. 

Automation and simplification.

An NSW system automates and simplifies this by allowing traders to submit all import, export and transit information required by regulatory agencies via a single electronic gateway. Paper is eliminated, and accurate and consistent information is available for traders. An NSW also allows traders to access all relevant trade rules, regulations, procedures, fee schedules and forms from all border management agencies through a single user-friendly website. 

NSW in Malaysia.

Malaysia has developed a single gateway for trade through the development of NSW which has been in operation since 2009. It is an initiative of the Malaysian government, led by the Ministry of Finance. 

Operated by DNeX since 2009.

NSW for Trade Facilitation system has been developed, operated and managed by DNeX since its inception in 2009 — with fairly stable recurring revenues and prof- its. The exclusive concession to DNeX is typically renewed every few years. Its current concession ends in August 2024, with a high possibility of further extension. HLIB Research is projecting a flat revenue of RM90 million and net profit of RM20 million annually.


  • This article first appeared in The Malaysian Reserve weekly print edition