Datasonic Group Bhd 
(March 10, RM1.28)
Maintain buy call with an unchanged target price of RM1.84: In addressing concerns about its weak third quarter of financial year 2017 (3QFY17) results, Datasonic Group Bhd’s management confirmed that it has received an order for one million units each of its MyKad and MyKad consumables during the current quarter. This comes after two consecutive quarters of minimal MyKad deliveries. 

We believe the return of orders likely indicate that inventory levels at the National Registration Department branches have normalised. We expect future deliveries to largely match the current demand of 3.3 million to 3.5 million copies per annum. 

As for the foregone two quarters of orders, we believe deliveries would be back-loaded as we move closer towards the expiry of the current contract in December 2019.

On its new role as the official supplier of national passport booklets effective December 2016, management highlighted that it is currently finalising a subcontracting agreement with Percetakan Keselamatan Nasional for interim supplies up to May. We expect this to be wrapped up by end of this month at the latest. 

From June 1, 2017, the group would commence commercial production of passport booklets with its new UNO and Intaglio printers, which cost RM40 million to RM45 million.

Accordingly, we expect much better results in 4QFY17 (to be released by end-May). We are forecasting its core earnings to reach RM19 million to RM22 million after factoring in one million units of MyKad delivery as well as 600,000 units to 700,000 units for all three of its passport components. 

We anticipate a fourth interim dividend per share (DPS) of 0.5 sen to one sen to be declared, with FY17 DPS totalling three sen to 3.5 sen.

Datasonic is also looking to provide driving licences as well as road tax stickers for on-the-road vehicles. According to official statistics from the Road Transport Department, there are 26 million registered vehicles on the road, and 14.7 million registered drivers as of 2015. 

Based on the average selling price of RM7.50 to RM8 per driving licence and RM2.50 to RM3 per road tax sticker, this could translate into an annual revenue stream of close to RM100 million. 

We understand that the group is now finalising its proposal with an official submission and presentation to relevant authorities likely to be by May or June. Official award could take place in the second half of 2017. We have yet to factor this into our earnings model at this juncture. — RHB Research, March 10