KUALA LUMPUR: RHB Investment Bank Bhd research (RHB research) said the introduction of a 10-year validity passport is short-term positive, medium-term negative and long-term neutral for Datasonic Group Bhd.
Last Friday, Home Minister Datuk Seri Saifuddin Nasution Ismail said his Ministry is ready to start offering 10-year validity passports but a date of implementation is yet to be decided.
RHB research said the change in government policy may disrupt the stability of Datasonic's earnings in 2030-2034 should it remain the vendor for Malaysia's passport solutions.
"Nonetheless, this may deter potential competitors given the high capital expenditure requirement, and increased risk premium on the uncertainty in volume during the transition period. As such, diversification of its business exposure will be essential to cushion its profitability from 2030," it said.
Forecasts are unchanged pending the details and guidance from management.
The firm maintained it 'Buy' call on the stock, with a 68 sen target price.
Key downside risks include higher input costs, weaker-than-expected orders, non-renewal of contracts and change in government policy.
"Based on our scenario analysis, revenue and profitability is expected to surge in the next 4-5 years given the potential higher average selling price (ASP), but we anticipate volume to decline by more than half from 2030 before normalising in 2035," RHB research said.
It said, assuming the option of the 10-year validity is available from 2025, they believe a majority of Malaysians would likely opt for the longer validity even though it will cost more given the cheaper cost per year and the hassle of going through the renewal process.
RHB research said this should result in higher revenue and profitability for Datasonic in the next 4- 5 years assuming a higher ASP for the supply of passport booklet with extra pages.
"However, we also expect the cost to inch up given the increase in complexity and higher machinery wear and tear of producing extra data pages. Roll forward to 2030-2034, the volume of passport renewal may reduce by more than half given the longer passport validity, before normalising from 2035," it said.
The company's stock was up 1.9 per cent to 53 sen a share earlier, giving it a market capitalisation of RM1.57 billion.