KUALA LUMPUR (June 19): Dagang NeXchange Bhd's (KL:DNEX) shares are poised for a sharp rally — close to double its current share price — said TA Securities in an initiation note.

The research house is recommending investors buy shares of the tech and investment holding company at a target price of 66 sen per share, which is more about 60% upside to its current price of 41.5 sen.

At present, DNeX is trading on Bursa Malaysia at just nine times its price-earnings ratio for the financial year ending Dec 31, 2027 (FY2027), which TA Securities believes is not a full representation of the group’s exposure towards the tech sector.

"In our view, the market has yet to fully appreciate SilTerra's strategic position within the rapidly expanding silicon photonics ecosystem, which is benefitting from strong demand driven by AI and data centres." the house said on Friday.

For context, in 2021 DNeX and its partner CGP Fund acquired a 100% stake in SilTerra Malaysia Sdn Bhd, a company well known for being one of Malaysia’s most vital semiconductor assets.

Presently, DNeX is most influenced by growth in the group’s semiconductor and energy divisions, while its information technology (IT) segment provides a source of stable recurring income.

The research house predicts DNeX’s semiconductor division to be heavily supported by SilTerra, which at present contributes towards more than half of the group’s total revenue.

Reflecting this, the segment has been valued at a price-earnings multiple of 35 times for FY2027.

DNeX has also been predicted to see a price-earnings multiple of five times in FY2027, namely due to its 90% stake in oil and gas company Ping Petroleum Ltd. 

Despite the signing of a 14-point interim agreement between the US and Iran over a ceasefire extension, concerns over global energy security are on the rise, leading to the group’s energy division receiving increased prominence, the research house said.

Finally, the group’s IT division is valued at a price-earnings ratio of 14 times for FY2027, due to it historically seeing consistent earnings and healthy margins, said TA Securities.

Net profit this year is expected to reach RM80 million based on a revenue of RM1.13 billion. Next year, earnings are predicted to jump to RM135.3 million on a revenue of RM1.57 billion.