Dsonic - overvalue?

To recap, in Dec 2013, Dsonic announced a one for give shares split, which together with the bonus issue, will address the company’s low liquidity.

Besides the bonus issue and dividend, it is a also a growth story, given the likelihood of it clinching more public ICT contracts.

It is understood that the company is close to securing a deal to supply an additional 10 million polycarbonate MyKads to the NRD. This could materialize sometime in the first half of 2014.

Furthermore, there is market talk that DSonic is one of the ICT companies that made presentations to the government for a project to implement selective petrol subsidies. It is learnt that DSonic’s proposal to the government is to have the income level of individuals incorporated into the MyKad chips in order to determine the appropriate subsidy when pumping petrol.

Currently (April 2014), DSonic has two contracts worth rm73.1 million and rm183 million with the NRD to supply new polycarbonate MyKads, the operating system and the chips. It also has a rm284.7 million contract for the manufacturer of 10 million polycarbonate photo pages for passports issued by the immigration department.

In its financial year 2013 ended Dec 31 2013, it delivered four million polycarbonate MyKads to the NRD and will be rolling out another four million in FY2014. As for the polycarbonate passport pages, the company has so far delivered 1.7 million for the 10 million it is required to supply under the contract. In fact DSonic is looking at 30% to 40% potential growth in this area in FY2014.

DSonic is also said to be eyeing Percetakan Nasional Malaysia Bhd (PNMB) from the Government. Sources say Datasonic has yet to submit a formal offer, but has already indicated its interest to the Government.

An acquisition is seen to be a perfect fit to the company’s core business as manufacturer and supplier of security cards. PNMB has a contract to supply identification cards to the Home Ministry and the Royal Malaysian Customs Department.

It is believed that a joint venture between pension fund Kumpulan Wang Persaraan (KWAP) and a company linked to Tan Sri Syed Mokhtar Al-Bukhary has already submitted a bid to acquire PNMB.

It is unclear, however, whether the Government is ready to sell PNMB. The company, which is wholly owned by the Ministry of Finance Inc was previously identified as one of the potential companies to be listed on Bursa Malaysia. The company was eyeing bigger and more lucrative projects.

It is currently (04 April 2014 trading at 39 times PER of its FY2013 EPS of rm0.1213.

DSonic’s MD DAtuk Hanifah Noordin is the largest shareholder with a direct and indirect stake of 50.25% while deputy MD Chew Ben Ben holds a 12.86% equity interest.