DNeX Q1 2025: A Deep Dive into Performance and Prospects

Dagang NeXchange Berhad (DNeX) has just released its first-quarter results for the financial period ended 31 March 2025. This report offers a crucial glimpse into the company’s strategic trajectory and operational health amidst a dynamic market environment. While the headline net loss might raise eyebrows, a closer look reveals a significant improvement in profit before tax, driven by strong segmental performances and strategic shifts. Let’s break down the key figures and what they mean for DNeX’s future.

Core Financial Highlights: A Closer Look at the Numbers

DNeX’s Q1 2025 financial performance presents a mixed picture. While overall revenue saw a slight dip, the underlying operational profitability tells a more encouraging story.

The Group’s revenue for Q1 FY2025 stood at RM296.8 million, a 4% decrease compared to RM309.8 million in the preceding year’s corresponding quarter. This was primarily influenced by lower contributions from the Energy and Information Technology segments. However, the most striking improvement was in Profit Before Tax (PBT), which soared to RM23.7 million from a mere RM0.4 million in Q1 FY2024. This significant turnaround highlights improved operational efficiencies and strategic segment performances.

Despite the strong PBT, the Group recorded a net loss of RM91.9 million for the period, translating to a loss of 2.28 sen per share. This was largely due to a substantial income tax expense of RM115.6 million, primarily driven by an additional deferred tax liability of RM112.1 million related to the UK Energy Profits Levy Scheme (EPL) extension. It’s important to note that this is a non-cash accounting adjustment and is expected to reverse over time as assets deplete and depreciate.

Segmental Performance: A Mixed Bag of Strengths and Challenges

DNeX’s diverse business segments — Technology, Energy, and Information Technology — each contributed uniquely to the overall performance.

Technology Segment

The Technology segment demonstrated remarkable resilience and growth, with revenue surging by 30% to RM178.7 million. This impressive performance was fueled by an improved product mix and stronger market demand, particularly for emerging technologies, which now account for 37% of the product mix, up from 19% a year ago. The average selling price per wafer also saw a significant increase to USD589 from USD467, coupled with an increase in wafer shipments to 63.4k units. This segment also substantially narrowed its loss before tax by 69%.

Energy Segment

The Energy segment experienced a 26% decline in revenue to RM78.8 million. This was primarily due to a 15% drop in average crude oil prices, which fell to USD74.3/bbl from USD87.7/bbl, alongside marginally lower lifting volumes (175k bbls). Despite the revenue decrease, the segment’s PBT only saw an 11% reduction, thanks to a net foreign exchange gain of RM8.5 million (compared to a loss in Q1 FY2024) and significantly lower finance costs following the full settlement of its secured bonds.

Information Technology (IT) Segment

The IT segment’s revenue decreased by 40% to RM39.3 million, mainly due to the absence of contributions from the Subsea Telco business, which completed its divestment. However, excluding this impact, the core operations of the segment remained robust, contributing to a 54% increase in PBT to RM14.9 million. The National Single Window (NSW) continued to be a key revenue driver, accounting for approximately 73% of the trade facilitation business.

Financial Health and Cash Flow

On the balance sheet front, total assets saw a slight decrease from RM4,214.3 million (as at 31 Dec 2024) to RM4,203.3 million (as at 31 Mar 2025). Total equity also decreased from RM2,192.3 million to RM2,109.6 million, leading to a slight drop in net assets per share. This was largely influenced by the net loss incurred during the quarter.

From a cash flow perspective, net cash generated from operating activities saw a notable decrease to RM8.8 million compared to RM79.8 million in Q1 FY2024. However, cash flow from investing activities improved significantly, turning positive at RM7.8 million (Q1 FY2024: RM(50.4) million), boosted by proceeds from the disposal of property, plant, and equipment. Net cash used in financing activities also decreased substantially to RM9.3 million, reflecting lower bank borrowings and finance costs.

Risks and Strategic Outlook for 2025

DNeX is not merely resting on its laurels but actively pursuing strategic initiatives across its segments to navigate market complexities and capitalize on emerging opportunities.

Strategic Prospects

• Technology: DNeX is making strategic investments in high-value, emerging technologies, with strong demand for advanced semiconductor solutions driven by AI and cloud computing. SilTerra is expanding its capabilities in Silicon Photonics, MEMS on CMOS, Life Sciences, and Smart Power, aiming to reinforce its position in the global semiconductor value chain.
• Energy: The focus is shifting towards rebalancing its upstream portfolio with an increased emphasis on Malaysian oil fields, including the reactivation of the Abu Cluster. In the UK, operations continue at the Anasuria field, with plans for developing greenfield assets. A disciplined cost structure and focus on production efficiency are expected to sustain profitability, building a more integrated energy platform.
• Information Technology: DNeX aims to be a key player in Malaysia’s digital transformation, expanding beyond government projects to include more private sector digital transformation initiatives. Strategic partnerships, such as with Google Cloud and Gamuda Group, are positioning DNeX as a leading provider of AI-enabled sovereign cloud infrastructure, targeting high-value clients in regulated sectors.

Potential Risks and Challenges

While the prospects are promising, DNeX faces certain challenges and ongoing legal matters that warrant attention:

1. UK Energy Profits Levy (EPL): The extension of the UK Energy Profits Levy Scheme (EPL) to 31 March 2030 led to a significant non-cash deferred tax liability of RM112.1 million in Q1 2025. While this is an accounting adjustment, it impacts the reported net profit and could continue to do so, though subsequent reversals are expected to result in tax credits.
2. Material Litigation – Former CEO: The ongoing legal action against a former CEO regarding a Remotely Operated Vehicle (ROV) acquisition saw a High Court ruling in DNeX’s favor, awarding significant damages. However, the defendant has filed an appeal, meaning the matter is not yet fully resolved and could incur further legal costs.
3. Material Litigation – SilTerra Minority Shareholder: DNeX is involved in arbitration proceedings with Mimastronics Technologies Company Limited (MIMAS) and Tethystronics Technologies Company Limited (TTCL), the minority shareholder of SilTerra. The arbitration award has affirmed TTCL’s right to appoint 3 directors to SilTerra’s board, and DNeX has filed for a set-aside and stay of this award. This ongoing dispute could have implications for SilTerra’s governance and strategy, and it will incur additional legal costs.