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Dnex to ride on Silterra’s turnaround

Dnex to ride on Silterra’s turnaround

17 Feb 2022

In the semiconductor space, Dagang Nexchange Bhd (Dnex) is emerging as a stock to watch as the company is expected to enjoy earnings growth from its recent corporate exercises.

Recall that last year Dnex acquired a 60% stake in Silterra Malaysia Sdn Bhd and bought an additional 60% of Ping Petroleum Ltd.

Both are expected to be the major growth drivers for the group, making up 87% to 88% of Dnex’s forecast core net profits from FY22 to FY24, according to CGS-CIMB Research in an initiation report on the stock.

According to the research firm, Dnex is well positioned to benefit from Silterra’s turnaround, underpinned by the ongoing semi chips shortages and structural shift towards More-than-Moore (MtM) devices.

The research firm initiated coverage on the stock with an “add” rating and target price of RM1.60. It added that the stock traded at an undemanding price-earnings (PE) valuation of 13.7 times 2022 forecast PE or 37%-44% discounts to Malaysian OSAT (outsourced semiconductor assembly and test) and ATE (automated test equipment) averages.

The research firm envisaged a stronger earnings delivery in coming quarters and projects a robust three-year core net profit at a compounded annual growth rate of 453% over FY21-FY24.

CGS-CIMB projects that Silterra could invest over RM900mil in capital expenditure (capex) in FY22-FY24 following a rise in the global MtM wafers demand that is driven by megatrends such as wireless 5G infrastructure, electric vehicles, artificial intelligence and machine learning.

It also expects Silterra to secure two new long-term agreements in the first half of this year, which will take up 80% of its capacity.

As for Ping, higher average crude oil prices will bode well for it.

The subsidiary is also poised to see higher production volume on the back of its new capex programme.

Additionally, CGS-CIMB said Dnex enjoyed a lower effective tax rate given that Silterra has over RM12bil as of July 2021 in unrecognised deferred tax assets that could be offset against its future profits. Its projections have yet to account for contributions from emerging technology platforms like silicon photonics that command premium average selling prices.

Source: The Star

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