Sunday, October 19, 2014

DATASONIC FUNDAMENTAL ANALYSIS

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Share Price
No of Shares
Net Income FYE2013
EPS (Sen)
P/E
Dividend (Sen)
Div Yield
1.60
1,350,000,000
81,899,000
0.061
26.37
0.01
0.63%

Yes indeed DSONIC is overvalued at the current level (RM1.60) the P/E is trading at 26.3x on the back of their FYE2013 earnings (RM81.9m/ EPS = RM6.1sen). So why despite DSONIC being overvalued I am still bullish on this stock?

In my opinion DSCONIC will not only match their FYE2013 record year, they are going to record tremendous growth in net income in next 2 years.

Why? DSONIC in my opinion as well as reported in THESTAR as well as several research houses, are convinced that DSONIC will succeed in securing the Fuel subsidy rationalization project from the government. Securing the contract on fuel subsidy will boost the Company’s income at least 30% - 50% in the next FY.

Why am I so sure? Well besides that it had reported in The Star and several research houses, here are the facts that convinced me.

1.      Most of DSONIC revenue are derived from government contracts, hence it is to be expected they will continue to leverage on their good relationship for more projects.
2.      Recent activities on awarded the mykad supply contract and acquisition of (30%) FuelSub House is paving the way to bid for this government project. In addition DSONIC had announced on 25th Jun that FuelSub, Pos Malaysia and DSONIC will jointly bid for the fuel subsidy contract.
3.      With DSONIC as well as its partners Fuelsub and POS Malaysia “good” connections to the government of the day + synergies from supplying mykad contract to NRD makes it almost guaranteed that DSONIC will get the project.
4.      While the degree of certainty is less concrete compare to Fuel subsidy project, DSONIC may have a role with putting 2000 buses and 100,000 Electric car by 2020 which is the ETP goal.
5.      Looking at an article from thestar dated 19th October 2014,  DSONIC recent quick acquisition of 30% stake in a company specialize in electric car technology + DSONIC previous and current revenue stream mainly from government contracts I see high possibility of DSONIC involvement when this government initiative takes off. 


ANALYSIS OF THE DSONIC CURRENT AND FUTURE INCOME

1.      DSONIC is heavily linked to current administration and they have been awarded several contracts and more contracts are expected. Prior projects are supply contract to Immigration Department, setup UTC

2.      Here are the activities/events that support my bullish view of DSONIC’s revenue and income:-
a.      On 4th April 2014 announced awarded to supply and install CCTV in Pulau Pinang for RM5.3m.
b.      On 9th April 2014 announced to purchase APCS for 21.8m which manufactures smartcards i.e. Mykad, subsequently completed on 16 Jul 2014.http://www.bursamalaysia.com/market/listed-companies/company-announcements/1597137
c.       On 18th April 2014, awarded to supply 4m  Mykad to NRD for RM72m for the period of 1st Jan 2014 to 30th June 2014
d.      On 18th April 2014 awarded to supply 10m  Mykad to NRD for RM220.2m for the period of 1st Jul 2014 to 30th June 2016
e.      On 25th Jun 2014 announced to purchase 30% of Fuelsub House Sdn Bhd for RM10m which will collaborate with POS Holding to secure fuel subsidy rationalization program. http://www.bursamalaysia.com/market/listed-companies/company-announcements/1670541
f.        On 26th Sep 2014 announced to purchase 30% of Electric Vehicle Automotive for RM30K which specialize in electric car technology subsequently completed on 2 Oct 2014.

3.      DSONIC already awarded the mykad supply contract and is in good stead to secure the RM250m – RM300m as it will pay a hefty sum to acquire 30% Fuelsub and further supported by an article reported by thestar on 3rd of May 2014 on DSONIC is on the verge of securing the fuel subsidy rationalization program http://www.thestar.com.my/Business/Business-News/2014/05/03/Datasonic-set-to-secure-new-Govt-job/?style=biz

4.      For next FY2015, DSONIC revenue and income will have a tremendous boost from the fuel subsidy program easily adding RM50m – RM100m revenue and hefty ROS.

5.      Beyond FY2016, DSONIC may benefit from another government project, on electric car program, where the government target to have 2000 electric buses and 100,000 electric cars by 2020.



INCOME STATEMENT ANALYSIS
·        Since Dsonic was listed in Sep 2012, data comparison goes as far back as 2012.
·        Revenue in FY2013 recorded at MYR260m grew by 46%, while net profit jumped nearly 3x to MYR81.9m from MYR28.1m.
·        Gross profit margin had improved to 53% from 42%, however it is notable that its “Administrative expenses” only increased by 6% despite revenue grew by 46%.
·        Reviewing last 5 quarters, revenue dipped in Q1 of FY2014 to MYR51.8m but recovered to MYR71.5m in Q2 FY2014. The decline in revenue in Q1 FY2014 was due to completion of a service contract, however it had secure a new contract to provide mykard to NRD. Unless the newly secured contracts additional revenue starts to roll in. DSONIC net income for FY2014 will decline to MYR55m.
·        In 30th Jun 2014 quarter reporting, it reported that its revenue grew to MYR71.5m by nearly MYR20m on the back of “higher deliveries of smart cards” and it is eye catching that its PBT was at MYR28.7m (PAT =MYR27.7m/ ROS =40%),which was an increase of 121% from previous quarter PBT at MYR12.9m (PAT= MYR12.5m) .

ESTIMATED FYE 31ST MAR 2015 INCOME
·        A lot of guesswork as I lack the actual data (so don’t flame me if I use the wrong assumption):-
o   Revenue from supplying mykard to NRD for FH2014 = MYR72m
o   Revenue from supplying mykard to NRD for SH2014 =MYR55m
o   Revenue from supplying mykard to NRD for Q12015 = MYR37m
·        Total Revenue actual in FH2014 =MYR123.4m of which MYR72m from mykard, non mykard revenue estimated to have generated MYR51.4m
·        Estimated 31st Mar 2015 revenue = MYR215.4m while RHB estimated MYR251m revenue for FY2014 (31st Dec 2014).
·        On slightly more optimistic approach on PAT estimation, using 30th June 2014 financial report and other quarters reporting (omit 31st Mar 2014) ROS is around 38%, hence PAT on estimated revenue (MYR215.4m) = MYR81.8m.
·        Omission of 31st Mar 2014 Net Profit ratio was due to completion of a supply contract would have skewed the ratio
30/6/2014
31/3/2014
31/12/2013
30/9/2013
30/6/2013
31/3/2013
Revenue
71,555,000
51,837,000
72,553,000
69,901,000
59,014,000
59,274,000
NET PROFIT RATIO
38.72%
23.98%
31.45%
33.54%
34.89%
25.39%

·        Revenue and net income will soar substantially if DSONIC awarded the petrol card subsidy contract which is worth MYR250m – MYR300m, however these will only be reflected in the next FY reporting i.e. 2016.

BALANCE SHEET

ASSET STUCTURE ANALYSIS
·        Balance sheet grew by 49% to MYR358.5m from MYR240.8m.
·        Majority of the growth were fueled by
o   PPE nearly tripled to MYR146.5m from MYR51.5m and
o   trade receivables grew by MYR65.4m to MYR137.9m
·        Breakdown of PPE addition
o   Machinery purchases MYR95m
o   Leasehold land 10.7m
o   Buildings MYR4.5m

LIABILITIES STRUCTURE ANALYSIS
·        The increase in assets were funded by long term borrowings and equity (on the back of MYR81m PAT).
·        Long term borrowings increased to MYR134m from MYR75.7m with maturity in between 2 – 5 years. The cost of borrowings @ 6.1% which explains FY2013 finance cost increased to MYR7.2m from MYR1.6m.

     Research By KH Wong

       
          CLICK HERE FOR TECHNICAL ANALYSIS


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