Datasonic’s fundamentals remain intact

by **Cals** Mon 21 Apr 2014, 11:31

Business & Markets 2014

Written by RHB Research

Monday, 21 April 2014 10:59

Datasonic Group Bhd
(April 18, RM3.62)
Upgrade to buy with target price of RM4.08: Datasonic’s share price dropped by 41.2% over the last two weeks after hitting a high of RM4.85 on April 1. This is despite announcements by the group of new contracts.

In particular, it has bagged a RM5.4 million contract awarded by the Penang Island Municipal Council for the supply, installation and maintenance of closed-circuit television cameras on the island.

Datasonic has also been appointed as the main sub-contractor to set up a one-stop visa centre for Indonesian workers in Malaysia.

The group had an outstanding order book of four million copies of the MyKad identity card as of December 2013. In view of the successful rollout of the new MyKad, which has improved security features to help combat identity fraud-related crimes, our financial year 2014 ending Dec 31 (FY14) and FY15F earnings estimates are still premised on our assumption that the group will secure a new order of 10 million cards worth RM180 million to RM190 million. In addition, we expect its earnings growth to be driven by the full-year contribution from its provision of photopages for the new Malaysian passports. Note that the contribution from the passport contract only started in the second half of 2013.

With its fundamentals remaining largely intact as we foresee earnings growth being driven by its MyKad and passport contracts, we leave our forecasts and RM4.08 target price (TP) (based on a 25.0 times calendar year 2015 price-earnings ratio) unchanged.

We upgrade our call to “buy” (from “neutral”) given the recent share price weakness, which offers over 40% upside to our TP. — RHB Research, April 18

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This article first appeared in The Edge Financial Daily, on April 21, 2014.