New semis growth driver emerging
? We see exciting growth opportunities for DNeX to solidify its position in semis
space with its new foundry JV with Foxconn and SilTerra’s turnaround plan.
? Reiterate Add with an unchanged RM1.70 SOP-based TP.
3QFY6/22 post-results briefing
? We attended Dagang NeXchange’s (DNeX) post-3QFY6/22 results virtual briefing
yesterday (30 May), hosted by Group Managing Director Tan Sri Dato’ Sri Haji Syed
Zainal Abidin. We gathered from management that DNeX is moving closer to a decision
on the site location for its new 300mm wafers fab JV with Hon Hai Precision Industry
(Foxconn) in Malaysia. DNeX aims to finalise the site location and enter into a definitive
agreement with Foxconn in 3QCY22F.
? In the meantime, DNeX is in discussions with prospective investors interested in funding
the project. We estimate that the new 300mm wafer fab may cost over US$4bn
(RM17.6bn) to build. The group is also looking to secure government incentives in the
forms of financial assistance and tax breaks to fund the project.
? In addition, DNeX is looking to leverage its relationship with Belgium-based technology
service provider and customer, Imec, to assist it in developing and carrying out
technology transfer on 28-40nm process nodes.
Key takeaways
? SilTerra’s capacity utilisation hovered at 100% in 3QFY22, driven by three long-term
agreements (LTA), which we estimate take up 70-75% of its installed capacity. SilTerra’s
revenue grew 4.2% qoq in 3QFY22, mainly driven by higher average selling prices
(ASP) per wafer and higher wafer shipment volume.
? The group highlighted that SilTerra’s Fab 1E expansion is on track to come online in
early-CY23F. Fab 1E will raise SilTerra’s installed capacity by 10%. This will allow the
group to increase its exposure in emerging technology, such as silicon photonics and
microelectromechanical systems (MEMS), which command higher ASP and better
margins. SilTerra is also looking to enter into its fourth LTA in 4QFY6/22F.
? Meanwhile, Ping Petroleum’s pretax profit doubled from US$3.5m in 2QFY22 to
US$7.1m in 3QFY22 on higher oil prices and greater sales volume. However, production
volume fell 16.7% qoq, mainly due to swivel leaks. Ping has a scheduled shutdown from
mid-Jun to carry out a riser reinstatement plan for its debottlenecking exercise. DNeX
expects this to help improve Ping’s production volume from FY6/23F onwards.
Reiterate Add and RM1.70 TP
? Reiterate Add on DNex with an unchanged RM1.70 SOP-based TP. DNeX trades at an
attractive 11.4x CY23F P/E, 47-62% discount to Malaysian outsourced semiconductor
assembly & testing (OSAT) and automated test equipment (ATE) sectors’ 5-year mean
P/E multiples. Potential re-rating catalysts: 1) stronger earnings in the coming quarters,
2) increase in institutional fund holdings (20% at end-Mar 2022), 3) narrowing discount
relative to Malaysian ATE and OSAT sectors, and 4) higher crude oil prices. Downside
risks: 1) weakening sentiment in the global tech sector, 2) delays in new capacity
expansion at SilTerra and capex programme at Ping, and 3) lower crude oil prices.