Dnex diversifies earnings by acquiring O&G assets

KUCHING: Dagang Nexchange Bhd ( Dnex) is diversifying from its earnings base of IT and eservices sector into oil and gas ( O& G) through the acquisition of oil- producing assets.

Among the oil producing assets acquired by Dnex is the proposed acquisition of an entire stake in OGPC Sdn Bhd, and a 52 per cent stake in OGPC O&G Sdn Bhd (OGCP Group), an O& G services provider, which was finally completed in August for a sum of RM170 million.

The acquisition of the OGCP group represents strong and steady earnings prospects for Dnex, noted the research arm of Kenanga Investment Bank Bhd, adding that OGPC group’s earnings remained resilient the previous year at RM20 million despite the industry downturn.

Dnex’s O&G segment earnings are expected to further boost due to the bagging of the threeyear US$$ 70 million directional drilling contract from Petronas Carigali by its 80 per cent owned subsidiary, Dnex Oilfield Sdn Bhd, earlier this year in May.

Additionally, Dnex will also generate associate income due to its 30 per cent stake in Ping petroleum Ltd, who has a 50 per cent stake in the Anasuria cluster, which is estimated to possess proven plus probable ( 2P) oil reserves of 20.25 million barrels.

The Anasuria cluster field which is current producing 6,400 barrels per day with an operating cost of US$ 23 per barrel, is set to be a great contribution to Dnex’s overall earnings profile.

Despite this, the research arm indicated that they would not discount the possibility of the field requiring further drilling programmes in order to further boost production.

Looking back towards at Dnex’s core business, the group has managed to calm concerned investors of the operation of its core product, National Single window (NSW), the trade facilitation system to expedite paperless custom clearance process, with a successful twoyear extension until September 2018 from the government.

Kenanga Research reports that the service charge will remain unchanged at 75.0 sen per kilobyte ( sen/ kb) for government agencies, 80.0 sen/ kb for the private sector, and RM5 per successful application.

“This allows Dnex to prolong its exclusivity for another two years before switching to uCustoms under a new framework to allow users to choose their preferred service providers,” declared the research arm.

Apart from steady earnings from NSW, Dnex’s IT and e- services earnings for 2016 were fuelled by the Vehicle Entry Permit ( VEP) contract that was secured earlier this year in February, which involved integrating and developing the system for the government to register foreign vehicles entering the southern border of Peninsular Malaysia and charge RM20 for every entry.

The maintenance contract for this system is still up for grabs, with Dnex aiming to secure it, if successful, Dnex earnings will only be further strengthen with the potential recurring income.

“Additionally, we believe there is an opportunity for Dnex to replicate the similar business model on the northern border of Peninsular Malaysia,” added the research arm.

In light of Dnex’s competencies and earnings portfolio, Kenanga Research is projecting Dnex’s earnings to grow 193 per cent and 48 per cent in FY16 and FY17, respectively.

Furthermore, the research arm is calling a ‘ Trading Buy’ on the stock with a fair value of RM0.28 per share.