Since Bursa Malaysia issued a trading  caution on Datasonic’s  stock  on 1 April,  its  share price has retraced by  41.2% over the last two weeks. However, we reiterate that its fundamentals remain intact as we foresee earnings  to  be  driven  by  its  MyKad  and  passport  contracts.  We  keep our  MYR4.08  FV  but upgrade our call to BUY (from Neutral),  given the recent share price weakness, which offers over 40% upside to our FV.

• Widespread  selldown  despite  positive  announcements.  Datasonic Group (Datasonic)’s share price has  dropped by 41.2% over the last two weeks  after  hitting  a  high  of  MYR4.85  on  1  April.  This  is  despite  new contracts announcement on Bursa  Malaysia. In particular,  the group has bagged  a  MYR5.4m  contract  awarded  by  Majlis  Perbandaran  Pulau Pinang  for  the  supply,  installation  and  maintenance  of  closed-circuit television  (CCTV)  cameras  on  the  Penang  island.  It  has  also  been appointed as the main sub-contractor to set up a one-stop visa centre for Indonesian workers in Malaysia.
• Fundamentals  remain  intact.  Fundamentally,  we  believe  Datasonic’s businesses are as per usual. The group had an outstanding orderbook of 4m copies of  MyKad  as of Dec 2013.  In view of the  successful rollout  of the  new  MyKad,  which  has  improved  security  features  to  help  combat identity fraud-related crimes,  our FY14F and FY15F earnings estimates are still  premised  on our assumption  that  the group would secure  a new order  of  10m  cards  worth  MYR180m-190m.  In  addition,  we  expect  its earnings  growth  to  be  driven  by  the  full-year  contribution  from  its provision of  photopages  for  the  new Malaysian passports.  Note that the contribution from this passport contract only started in 2H2013.
• Upgrade to BUY.  With  its fundamentals remaining  largely  intact as we foresee  earnings  growth  to  be  driven  by  its  MyKad  and  passport contracts,  we  leave  our forecasts  and  MYR4.08  FV  (based on  a  25.0x CY15 P/E)  unchanged. Nonetheless,  we upgrade  our  call to BUY (from Neutral)  given the recent share price weakness, which  offers over 40% upside to our FV.
• Risks. Key risks include possible delays in contract awards and revenue concentration on its MyKad contract. 

Financial Exhibits

SWOT Analysis

• Involved in the provision of smart chip-based ICT solutions, for which it has an established presence

Company Profile
Datasonic  Group  is  principally  involved  in  the  provision  of  information  and  communications  technology  (ICT)  solutions  that  include smart card personalisation services, customisation of large-scale government ICT solutions, project management, as well as technical consultancy services.

Recommendation Chart

Source: RHB