Dnex on track to become a global tech player

PETALING JAYA: Dagang Nexchange Bhd (Dnex) recent tie-up with Foxconn will help the former leapfrog into the semiconductor technology advancement business.

CGS-CIMB Research describes it as an exciting opportunity for Dnex to grow its foundry business, leveraging Malaysia’s unique position in the global electrical and electronics (E&E) supply chain amid the ongoing trade war between the United States and China.

Overall, the latest new wafer fabrication project and the acquisition of Silterra aligns well with the group’s long-term strategy to become a global technology company, it said.

Hong Leong Investment Bank (HLIB) Research adds that it applauds the direction of this expansion plan even though the journey is only in its preliminary stages until a definitive agreement is ironed out. However, it remains upbeat about this development.

Dnex recently said it has entered into a memorandum of understanding with Big Innovation Holdings (a wholly-owned subsidiary of Foxconn) to set up a joint venture company to build and operate a new 12-inch wafer fabrication plant in Malaysia.

CGS-CIMB Research estimates the new 300mm wafer fab may require a massive investment of at least Us$4bil (Rm17.6bil) to build and facilitate its production floor.

It said Dnex may be looking for government incentives in the form of financial assistance and tax breaks to partially fund the project. This will help reduce the initial capital outlay for the group. The partnership with Foxconn will address investors’ concerns over unutilised capacity as it estimates the new fab will be mainly dedicated to support Foxconn’s semiconductor vertical integration strategy.

As it is, Foxconn has a 3.9% stake in Dnex and its entry in the group will provide opportunities to unlock and create value across the technology sector value chain that could include collaboration in semiconductor and downstream products, such as electric vehicles and businesses related to the electric vehicle value chain.

The research house said this could bring exciting growth opportunities for Dnex to participate in Foxconn’s ecosystem.

It retains its “add’’ call on the stock with a target price (TP) of RM1.60 a share. It also foresees stronger earnings delivery in coming quarters, rise in institutional fund holdings (10% as at end-december 2021), new joint venture partnership with Foxconn, depreciation in ringgit versus the greenback and higher crude oil prices as potential re-rating catalysts for the stock.

HLIB Research maintains its “buy’’ call with a TP of RM1.64 per share.