Datasonic awaiting its next catalyst

by **Cals** Fri 27 Jun 2014, 00:26

Business & Markets 2014

Written by RHB Research

Thursday, 26 June 2014 10:19

Datasonic Group Bhd
(June 25, RM2.02)
Maintain neutral with target price of RM2.04: A recent report, citing unnamed sources, carried by a local daily stated that Datasonic could soon secure a contract to facilitate the allocation of petrol subsidies.
Another daily meanwhile reported that a multi-tier fuel price scheme may potentially be implemented by, at the soonest, September. We think this proposal makes sense since the government intends to rationalise its existing subsidy scheme.
We note that out of the total RM40 billion in subsidies, fuel subsidies take up more than RM22 billion a year. Should the plan go ahead, we believe Datasonic stands a good chance of securing a role in the scheme, given that it also manufactures the identification card, MyKad. This may ensure full integration of the proposed new fuel subsidy scheme with the existing MyKad platform.
Management is also looking to digitise patients’ medical and health records into their MyKads. Such a system may enable healthcare providers to keep track on patients’ data more effectively. As there are 140 public hospitals and 210 private hospitals in Malaysia, we see enormous potential in this area should the health ministry roll out this plan.
Recall that the company was involved in the installation of closed-circuit television (CCTV) security camera systems in Penang. We believe that management may look at replicating this model in other parts of Malaysia as the government is exploring ways to reduce crime, which is one of the National Key Results Areas aimed at improving the socio-economic well-being of Malaysians.
Although it is too early to quantify the potential earnings accretion from these initiatives, we like Datasonic’s chances of securing them, given the company’s success in implementing the latest version of MyKad. We think this could provide room for another rerating.
Retain “neutral” call for now, with target price unchanged at RM2.04, based on 25.0 times financial year 2016 ending March 31 price-earnings ratio. — RHB Research, June 25

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This article first appeared in The Edge Financial Daily, on June 26, 2014.
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