• BUY, new MYR0.62 TP from MYR0.63, 39% upside and c.5% FY24F (Mar) yield. 9MFY24 results are slightly below our estimate, but in line with the Street projection. We expect it to chalk stronger numbers in 4QFY24, from higher demand for its various solutions and margin expansion stemming from price adjustments. Its current below-mean valuation is attractive, due to its earnings growth ahead, persistently robust demand for its solutions and handsome dividend yield, supported by a sturdy balance sheet.

• A slight miss. Datasonic Group’s 9MFY24 revenue of MY252.6m (+5.3% YoY) was supported by higher demand for both passport and smartcard solutions. However, it booked a marginally lower core profit of MYR52.4m (-2% YoY) due to higher operating costs. Its results are slightly behind our estimate, but within the Street’s full-year forecasts due to the slow ramp-up of iKad solutions and higher tax expenses. A third interim DPS of 0.5 sen (flat YoY) was declared. YTD DPS comes up to 1.7 sen.

• 3QFY24 core profit contracted 14.6% QoQ or 5.7% YoY to MYR15.7m, while its revenue dropped by 7.7% QoQ (-1.9% YoY) to MYR80.5m. This was due to the absence of MyKad deliveries following the expiry of its contract to supply this in May 2023, as well as the higher base from the supply of autogate solutions in 3QFY23. The passport chips and booklet deliveries were marginally down QoQ, at 800k (2QFY24: 810k) along with polycarbonate data pages at 719k (from 725k).

• 4QFY24 numbers are expected to trend higher on the back of: i) Sustained strong demand for passport solutions; ii) pent-up orders for MyKad following the contract extension secured in January; and iii) positive price adjustments for the contract extensions. Its outstanding orderbook is now at c.MYR409m following the contract extensions secured last month, providing a 1.2x cover ratio. Management remains confident of clinching the long-term contracts for identity card and passport solutions, along with the new hardware and printing systems. DSON is also eyeing a foreign passport project, MyKid, as well as an auto-gate solutions job. Meanwhile, there has been no meaningful progress for the MoU with the Ministry of Urban Planning, Housing and Territorial Development of the Republic of Guinea.

• Forecast and ratings. We lower FY24-26F net profit by 5.4%, 1.7% and 2.2% on the slower rollout of iKad solutions and higher tax expenses. Our TP dips to MYR0.62 and is based on an unchanged 20x CY24F P/E (at the 5-year mean), with a 2% ESG premium incorporated, since DSON’s ESG score of 3.1 is higher than the country median.

• Key downside risks include higher input costs, weaker-than-expected orders, and the non-renewal of contracts.

Source: RHB Research - 1 Mar 2024