• BUY, new MYR0.64 TP from MYR0.62, 23% upside and c.5% FY25F (Mar) yield. Datasonic Group’s record-high earnings for FY24 outpaced expectations, thanks to stronger-than-expected orders for its passport solutions and sturdy margins. We expect its earnings growth to continue into FY25, given the sustained healthy demand for its products and margin expansion. Its current below-mean valuation is attractive – considering the healthy yield, strong cash flow generation and potential upside from new project wins.

• Beat! DSON’s historic high FY24 revenue of MY368.3m (+6.8% YoY) translated to a record core profit of MYR91.1m (+22.5% YoY), ie at 115.5% and 116.6% of our and consensus full-year estimates. The strong revenue growth was supported by higher demand for both passport and smartcard solutions, coupled with its own ASP adjustments. Margin expansion resulting from higher ASP, economies of scale and lower depreciation (majority of the equipment was fully depreciated) supported the stronger bottomline growth. A fourth interim DPS of 1.3 sen (4QFY2: 0.75 sen) was declared, bringing YTD DPS to 3 sen (FY23: 2 sen).

• 4QFY24: Best ever quarter, with core profit up by 1.5x QoQ and 85% YoY to MYR38.7m, in tandem with the revenue growth of 43.8% QoQ or 10.3% YoY to MYR115.7m. The stronger QoQ numbers were mainly on the low base, from the absence of MyKad deliveries post expiry of its contract and higher margin due to a higher ASP. Meanwhile, YoY numbers were supported by stronger demand for all its main solutions. The passport chip and booklet deliveries were at 940k (3QFY24: 800k), along with polycarbonate data pages at 745k (from 719k). MyKad card and consumables came in at 738k and 845k while iKad order volumes exceeded 100k.

• Expect the positive earnings trend to be maintained in FY25, supported by: i) Sustained strong demand for passport solutions; ii) positive price adjustments for the contract extensions, and iii) the ramp-up in demand for iKad solutions. These could be further spurred by additional auto-gate, foreign passport project and other solutions. While its outstanding orderbook is now at a record low (<MYR200m) following the expiration of its contract on 31 May, we remain confident on the continuity of contracts for identity card and passport solutions – given DSON’s strong track record in delivering quality products without disruptions, at competitive pricing.

• Forecast and ratings. We maintain our FY25-26F earnings. Our TP rises to MYR0.64 from MYR0.62, as we roll forward our valuation base year to FY25, based on an unchanged 20x P/E (at the 5-year mean). We incorporated a 2% ESG premium into our TP as 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 - 31 May 2024