• Keep BUY and MYR0.68 TP, 34% upside, and c.5% FY25F (Mar) yield. Datasonic Group has accepted Letters of Extensions worth MYR182m from the Home Affairs Ministry (KDN) for the supply of national identity (ID) cards, comprehensive maintenance services, and e-Passports solutions for another six months ending 30 Nov 2024. The contract extensions are within expectations and should help to boost investor confidence on its capabilities in delivering mission critical projects with great value and without disruption.

• Contract extension for supply of e-Passport solutions... DSON received the contract extension on 4 Jun from KDN for the following supply contracts: i) Malaysian passport chips, ii) Malaysian passport documents, and iii) polycarbonate biodata pages. The MYR142m worth of additional ceiling contract values were on an extended period of six months from 1 Jun to 30 Nov 2024. It is worth noting the Government is currently evaluating an improved version of the passport solutions and new printing systems before deciding on a new longer term contract.

• …and MyKad. Concurrently, the supply of MyKad, MyTentera, MyPOCA raw cards, consumables, and comprehensive maintenance services of card personalisation centres at the National Registration Department have been extended for another six months ending 30 Nov 2024. The new contract extensions are worth MYR39.4m. We understand the authority is evaluating the proposed new generation of MyKad along with a new printing system before deciding on a fresh longer-term contract. Recall: DSON has been the vendor of these solutions since 2012.

• Looking to further expand the orderbook. Following the contract extensions, the group’s orderbook stands at c.MYR280m. Moving forward, management remains committed to securing the long-term contracts for both ID card and passport solutions, along with the new hardware and printing systems, auto-gate solutions, and identity management system. DSON is also looking forward to penetrate into more overseas passport solutions following the MYR20m 5-year e-passport contract win to supply a West African country. Besides, the group is also working on a new solution with artificial intelligence or AI features to improve clearance time for the MBike system at Johor Bahru’s border control.

• Forecast and ratings. We maintain our forecasts as the contract extensions are within our expectation. Our TP remains at MYR0.68, based on an unchanged 20x FY25F P/E (at its 5-year mean). We bake in a 2% ESG premium into our TP. We like DSON for its competitive strength in its niche solutions, healthy yields, strong cash flow generation, and potential upside from new project wins at below mean valuation.

• Key downside risks: Higher input costs, weaker-than-expected orders, non- renewal of contracts, and changes in government policies.

Source: RHB Research - 5 Jun 2024