Poised for a stronger 4QFY22F
? 9MFY6/22 results beat expectations at 82% of our and 80% of Bloomberg
consensus due to stronger-than-expected margin delivery in 3QFY6/22.
? We project a stronger qoq core net profit growth in 4QFY6/22F, driven by
higher crude oil prices for Ping and higher wafers ASP for SilTerra.
? We raise FY22-24F EPS by 7-12%. Retain Add with a higher RM1.70 TP.
Solid 3QFY6/22 results, despite higher tax expense at Ping
Dagang NeXchange’s (DNeX) revenue in 3QFY6/22 grew 8.3% qoq to RM383m, due to
stronger contribution from all segments — technology, energy and IT services. Energy
division revenue rose 24% qoq, mainly due to higher average selling prices (ASP) following
the surge in Brent crude oil price in the quarter. Meanwhile, technology division revenue
also grew by 4% qoq, driven by sequential improvement in wafer selling prices. As a result
of higher operating leverage, pretax profit margin in 3QFY22 rose 10.8% pts qoq to
28.7%in the quarter. Meanwhile, the group also incurred a higher RM32m tax expense in
the quarter against RM1.5m positive tax charges in 2QFY22. The group attributed the
higher tax expense mainly to Ping Petroleum as the group is taking a more prudent
approach to streamline its tax expense over multiple quarters instead of a back-end loaded
adjustment. Therefore, we expect the effective tax rate to normalise in 4QFY6/22F. Overall,
DNeX’s core net profit in 3QFY22 still fell by 8.4% qoq to RM51.7m. There is no yoy
comparison since DNeX changed its financial year-end from Dec to Jun in FY21.
Raising FY22-24F EPS by 7-12%; poised for a stronger 4QFY6/22F
We raise our FY22-24F EPS by 7-12% in view of better-than-expected earnings delivery
from both Ping and SilTerra. We raise our FY22-24F crude oil forecast assumption from
US$65-$75/barrel to US$70-85/barrel. Moreover, we project a stronger qoq sales and net
profit growth in 4QFY6/22F, driven by higher crude oil prices. Meanwhile, we also raise
SilTerra’s ASP/mask layer assumption from US$22-25 to US$23-25.
Exploring new growth opportunity in 300mm foundry with Foxconn
DNeX recently entered into an MOU with Foxconn for a potential JV Co to set up a new
300mm fab for 28-40nm process nodes in Malaysia. This is an exciting opportunity for
DNeX to grow its semis business and participate in Foxconn’s vertical integration plan. We
think it is premature to forecast any revenue and earnings potential at this juncture;
however, we estimate that once it is fully operational, the new fab could have higher
revenue generating potential than SilTerra due to 1) higher production capacity of 40k
wafers/month (vs. SilTerra: 36-37k wafers/month), 2) higher average selling prices for
newer technology nodes from 28nm to 40nm (vs. SilTerra: 90nm to 110nm) and 3) higher
number of dies per wafers for the new 300mm fab (vs. SilTera: 200mm fab).
Reiterate Add with a higher RM1.70 TP
Reiterate Add with a higher RM1.70 SOP-based TP. The stock trades at an attractive 11.5x
CY23F P/E, or 38-50% discount to Malaysian OSAT and ATE sector mean P/E multiples.