KEY INVESTMENT HIGHLIGHTS

• Maintain BUY with an unchanged target price of RM0.58 post the announcement on 2QFY25 financial results
• 1HFY25 normalised earnings grew by +22.7%yoy to RM44.0m, supported by resilient revenue and lower operating cost
• No surprises in 2QFY25 financial performance as it tracked our expectation at 45.1% of full year FY25 earnings estimates
• We foresee 2HFY25 earnings to come in stronger as compared to 1HFY25, led by a set of new deliverables

Active effort to diversify income base. We are keeping our BUY recommendation for Datasonic with an unchanged target price of RM0.58 post the 2QFY25 results announcement. The group posted weaker 2QFY25 financial results in view of the lower demand for its products and services. Nonetheless, 1HFY25 financial performance remains commendable as the resilient revenue was supported by lower operating costs. Moving forward, we expect 2HFY25 revenue to come in more strongly, led by a series of new deliverables. One of which is the delivery of e-passport to a west African country which indicates the group's commitment to diversify income away from the local Government.

In addition, given the share price weakness we view that the dividend yield is attractive at more than six percent.

Slower demand. Datasonic's 2QFY25 normalised earnings contracted marginally by -1.8%yoy to RM17.5m. This was mainly attributable to higher taxation and lower demand for its products and services.

Note that revenue came in lower at RM81.0m in view of lower supply smart cards, passport and personalization services.

Kept pace with expectation. On a cumulative basis, 1HFY25 normalised earnings improved by +22.7%yoy to RM44.0m. While revenue remained resilient at RM171.8m (-0.1%yoy), the group recorded a decline in operation cost.

All in, Datasonic's 1HFY25 financial performance kept pace with our expectations, making up 45.1% of our FY25 full year earnings estimates.

We anticipate earnings to come in higher in the subsequent quarters. This will be supported by; i) higher delivery i-Kad, ii) recognition of revenue from E-passport to a West-African country, iii) deployment of new autogates and iv) supply and printing services of special category of driving license.

Healthy balance sheet. The group recorded lower 2QFY25 net debt of -RM11.8m, an improvement from -RM37.9m a year ago. This will put the group in a better position in terms of funding for the acquisition of Innov8tif Holdings.

Source: MIDF Research - 29 Nov 2024