• Keep BUY and MYR0.68 TP, 71% upside, c.7% FY25F (Mar) yield. We are positive on Datasonic Group’s contract extension worth MYR81.2m from the Home Affairs Ministry (KDN) for the supply of national identity (ID) cards and comprehensive maintenance services for a period of 12 months ending 30 Nov 2025. We expect the contract extension for passport-related solution should follow suit in the near future. The contract extensions are within expectations and is a testament to its product quality and services over the past decade and should help to lift some share overhang, in our view.

• Contract extension for supply of MyKad. On 2 Dec, DSON accepted the Letter of Extensions for the supply of MyKad, MyTentera, MyPOCA raw cards, consumables, and comprehensive maintenance services of card personalisation centres at the National Registration Department (JPN) for another year ending 30 Nov 2025. The new contract extensions are worth MYR81.2m. We understand the authority is evaluating the proposed new generation of MyKad along with new printing system before deciding on a new longer-term contract.

• Looking to replenish the orderbook. Following the contract extensions, the current orderbook is in excess of MYR100m and management remains committed to secure the extension for the supply of passport and related solutions as well as creating long-term values for both ID card and passport solutions, along with the new hardware and printing systems, auto-gate solutions, and identity management system. Besides this, management also looks forward to penetrate into more overseas projects given their cost competitiveness and quality in security documents.

• Outlook. With the contract extension, FY25 earnings outlook remains healthy on the back of sustained strong demand for its various government-related solutions and margin expansion stemming from ASP adjustments. The current share price overhang from the absence of contract extensions for both its MyKad and passport-related solutions should ease once the extensions are secured.

• Forecast and ratings. We maintain our forecasts as the contract extensions are within our expectation. Our TP remains at MYR0.68, based on unchanged 20x FY25 P/E (at the 5-year mean), inclusive of a 2% ESG premium. 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 change in government policy.

Source: RHB Securities Research - 3 Dec 2024