• Maintain BUY (TP: RM0.58). Dagang NeXChange Berhad (DNeX) 18M23 core PBT of RM187mn was below our expectations at 77%. This decline followed the company's sudden shift to a loss before tax of RM26mn, primarily due to weaker performance by Silterra, which posted its fifth consecutive quarterly loss with a loss before tax of RM31mn. Nonetheless, we remain sanguine on its long-term outlook as it set to ride on strong demand growth in semiconductor industry, leveraging on the potential new fab plant deal with Foxconn. Maintain DNeX as a BUY with unchanged SOP-derived TP of RM0.58.

• Key highlights. The company fell into losses in 6Q23 with headline LATAMI RM14.6mn, dragged by larger losses at Silterra as well as weaker performance in IT e-Services segment (see Table 2). Silterra’s revenue declined 8% QoQ and 12% YoY to RM145mn on lower wafer shipments. Meanwhile, the IT e-Services revenue was weaker at RM41mn due to lower revenue from Subsea Telco business amidst maintenance activities of the subsea cable laying vessel. Energy segment remain the main earnings contributor to the group with PBT of RM20.2mn.

• Earnings forecast. No change to our earnings forecast pending analyst briefing on 1st March 2024.

• Outlook. Despite weak earnings outlook in near term, we remain optimistic on its long-term outlook mainly from (i) its new fab plant deal with Foxconn, (ii) JV with Ajlan Bros for Neon smart city project in Saudi Arabia, (iii) launching of new ERP products targeting government agencies and SMEs, and (iv) development of Meranti oil field and reactivation of Abu Cluster with first oil targeted in FY24.

Source: BIMB Securities Research - 1 Mar 2024