The positive news helped push the share price as high as 9.68% to 68 sen today, making it one of the most actively traded stocks after a week on the downtrend. It ended the day up 2.5 sen or 4.03% to 64 sen, valuing the group at RM2.04 billion.
In a Bursa Malaysia filing on Monday, DNeX announced its net profit for the second quarter ended Dec 31, 2022 (Q2 FY2023) fell by 27.26% to RM31.88 million from RM43.83 million a year earlier, partly due to higher tax expenses.
Net profit for the first half (H1) FY2023 plummeted 78.2% to RM73.6 million from RM337.4 million in the same period the previous year.
Core profit came in only at 35% of the analysts’ consensus of the group’s full-year forecast.
Both CGS-CIMB Investment Bank and Hong Leong Investment Bank (HLIB) reduced target prices on the group’s stock, from RM1 to 90 sen and RM1.08 to RM1.03 respectively.
Legal victory
In a week where there was little to cheer about for DNeX, the legal victory came at an opportune time.
The suit was filed in July 2021 by Tethystronics Technologies Company Ltd (TTCL), whose application for an injunction against the two subsidiaries, DNeX Semiconductor Sdn Bhd (DSSB) and semiconductor manufacturer SilTerra Malaysia Sdn Bhd, was also struck out, after a consent order was recorded in the High Court.
DNeX said the consent order will be effective until the full satisfaction of any final award given to TTCL in an arbitration, or until the date of the final award if TTCL’s claims are unsuccessful.
TTCL is a special-purpose vehicle ultimately owned by Beijing Integrated Circuit Advanced Manufacturing and High-End Equipment Equity Investment Fund Center (CGP Fund). TTCL holds a 40% equity interest in SilTerra, with the remaining 60% owned by DNeX via DSSB.
The suit revolved around a contest by TTCL to the rights of DNeX as a majority shareholder of SilTerra to appoint directors to SilTerra’s board via members’ written resolutions (MWR).
TTCL wanted to restrain SilTerra and DSSB from taking any steps towards effecting any further change in the composition of SilTerra’s board.
Under the consent order, the board composition of SilTerra will remain the same as it was prior to the MWR.
Challenging economic environment
DNeX’s technology and IT segments, namely SilTerra, saw a decline in revenue from the preceding quarter.
However, a year-to-date comparison paints a better picture with overall higher shipments of wafers, bolstered by higher energy prices contributing to profit before tax.
Despite energy revenues from the group’s 90%-owned Ping Petroleum PLC rising 36.2%, higher taxes under the UK’s energy profit levy (EPL) dampened its positive impact on DNeX’s financials.
The EPL Act requires oil and gas (O&G) companies operating in the North Sea to pay a 35% levy on their profit from January 2023 to March 2028, on top of the 30% corporate and 10% supplementary tax on O&G companies.
“This will be partially offset by investment allowances for expenditure-related upstream activities. Overall, we expect Ping Petroleum’s effective tax rate to increase from 40% to about 60% annually in FY2023-25,” said CGS-CIMB analyst Mohd Shanaz.
Carving a path forward
DNeX is hopeful the semiconductor industry will see relief in the long- term, with wafer shipment normalising and due to the commitment of delivery volumes from three Long-Term Agreement (LTA) customers.
Additionally, Ping Petroleum has diversified its O&G assets beyond the North Sea. In separate filings on Jan 19, the group announced it secured two production sharing contracts (PSCs) with Petroliam Nasional Bhd (Petronas).
The contracts include the Meranti Cluster, 82km offshore from Kuala Terengganu, and another 290km offshore from Miri, Sarawak.
To mitigate the fall-off in earnings, the group announced a new partnership on Tuesday with national research and development (R&D) centre Mimos Bhd.
The memorandum of understanding (MoU) outlines support for the development of digitalisation activities in software development, cloud computing and much more.
“This is in line with the government’s aspiration to reduce bureaucratic red tape, improve efficiencies, and address leakages and wastage issues while enhancing its revenues across all operations,” said DNeX executive chairman Syed Zainal Abidin Syed Mohamed Tahir.
DNeX had previously delivered a variety of e-services to the government, namely the Malaysia Hasil Integrated Taxation Systems (HITS) and Integrated Government Financial Management Accounting System (iGFMAS).
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