Datasonic Group could anticipate a surge in revenue and profitability due to the implementation of an optional 10-year passport validity, according to a report by RHB Investment Bank.
RHB has maintained a BUY rating on the group with a target price of RM0.68, indicating a potential upside of 30% and a forecast yield of approximately 5% for the Fiscal Year 2025.
The Home Affairs Ministry's announcement of a 10-year passport validity option, expected to be offered at a higher price, is projected to increase the group's revenue and profitability in the next 4-5 years. RHB's scenario analysis suggests that if the longer validity passports are introduced in 2025, a majority of Malaysians might opt for this option, despite the higher cost, due to the lower cost per year and reduced renewal hassle. This shift could result in a higher Average Selling Price (ASP) for passport booklets with extra pages.
The report detailed that while the immediate impact would be positive, with increased complexity and machinery wear and tear potentially raising costs, a significant reduction in passport renewal volume is expected from 2030-2034. The volume is predicted to normalise by 2035. RHB's analysis estimates that 80% of the annual 2-2.5 million passport volumes might opt for the 10-year validity, with potential Fiscal Year 2026 Forecast (FY26F) earnings changes ranging from -1.3% to +15.5%, and a target price range of RM0.46-RM0.66 based on 15-20x Price per Earnings (P/E).
The change in government policy could disrupt DSON's earnings stability between 2030 and 2034 if it remains the vendor for Malaysia's passport solutions. However, the increased capital expenditure (capex) requirements and heightened risk premium due to volume uncertainty during the transition period might deter potential competitors. Consequently, RHB suggests that diversification of Datasonic's business exposure will be essential to cushion its profitability from 2030 onwards.
RHB's target price for DSON remains at RM0.68, based on an unchanged 20x Fiscal Year 2025 Forecast.