One of the biggest Bursa Malaysia darlings in FY2021 following the glove rally & bust, DNEX made headlines last year for its 500% share price jump & major acquisitions of Silterra. The company’s momentum did not quite carry on in FY2022 as its share price is 16% below its high made in Feb 2022. Despite the lacklustre price momentum this year, we continue to maintain a bullish outlook for the company on the following reasons:

Competitive Valuation & Growth Prospect:

The company’s current market capitalization is RM3.345bil. When compared to its recent quarter earnings of RM43mil (172mil annualized), it translates to a PE ratio of 19x. This PE ratio is considered very competitive compared to peers in the domestic semiconductor industry such as D&O (45x), FRONTKN (42x) & INARI (28x). The company’s valuation is likely to be more competitive as its semiconductor earnings will be boosted by its upcoming 20% growth in annual capacity and its energy segment will see increased profit contribution owing to its increased shareholding in Ping from 30% to 90%. Ping has been a cash cow as its operating cost per oil barrel is USD20 while the global crude oil price has stayed above USD90 per barrel since the start of Feb 2022.

Technical Indicators & Price Pattern

Our bullish outlook is supported the company’s share price patterns & technical indicators. Despite a correction from its recent high, the company’s share price remains well above its 200-day moving average, confirming it is still firmly on an uptrend. Additionally, the recent correction has confirmed that the company has a strong support level at the 61.8% level, RM0.94, of its rally from Dec 2021. This gives bulls a good risk reward-ratio of 2:1 when compared to its recent high of RM1.26. Additionally, the stock does not have large transaction volume for price brackets above its current price level. This suggests that there will unlikely large selling volume from bagholders that will prevent the company’s share price from continuing its current rally that started from mid March 2022

Healthy Balance Sheet & Access to Funds

Despite the company’s ambitious growth plans and large acquisition appetite, its balance sheet has been rather healthy. The company’s current unrestricted cash balance as at Q2 of FY2022 stands at RM663 million while its borrowings stands at RM320 million. Its recent successful private placement to raise over RM100mil also proves that the company has a ready base of investors who are prepared to finance the company’s growth plans. The combination of both factors will ensure that the company has the necessary financial resources to execute its growth plans.

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