The New Technology Stock in My Watchlist (Undervalued)

Amidst the market weakness, I had spotted a technology stock now with a strong support level (technical wise). This company is a very niche Customer Experience (CX) solutions provider in Malaysia with Artificial Intelligence (AI) technology in their business.

Support Level: RM0.325, RM0.320

Resistance Level: RM0.345

DAY3 Digital Berhad has released its financial results for the second quarter of 2024, showcasing a solid performance and a promising outlook for the remainder of the year. The company continues to build on its strengths, with a focus on technological innovation and operational efficiency.

In Q2 2024, DAY3 reported a revenue of RM23.9 million, up slightly from RM23.0 million in the same quarter last year. This steady growth reflects the company’s ability to maintain strong customer relationships and secure consistent business from its key clients.

For the first half of the year, total revenue reached RM47.6 million, marking a significant increase from RM42.3 million in the same period in 2023. This year-to-date performance underscores the growing demand for DAY3’s digital solutions and services.

DAY3’s Profit Before Tax (PBT) for Q2 2024 stood at RM2.3 million, compared to RM3.6 million in Q2 2023. Despite the year-on-year decrease in PBT, the company's ability to maintain stable profitability highlights its effective cost management strategies, especially amidst rising costs and a challenging market environment.

Notably, the gross profit margin improved to 20.8% in Q2 2024, up from 19.7% in the previous quarter. This margin expansion was driven by higher transactional volumes from key customers, leading to increased revenue and better overall profitability.

The company ended the quarter with a robust cash position of RM27.9 million, which, although lower than the RM33.6 million at the end of FY2023, still highlights its prudent financial management. This strong cash balance provides DAY3 with the flexibility to invest in new opportunities and navigate any potential challenges in the market.

In a significant development, a subsidiary of DAY3, Daythree Business Services Sdn Bhd (“D3BS”), was granted an extension of its pioneer status under the Malaysia Digital (“MD”) initiative. This status, initially set to expire on 15 February 2022, exempts D3BS’s business income from income tax.

On 20 August 2024, the Malaysian Investment Development Authority (“MIDA”) approved the extension of this tax exemption for another five years, covering the period from 16 February 2022 to 15 February 2027. This extension is expected to positively impact the company’s financial performance by reducing tax liabilities and enhancing profitability.

Looking ahead, DAY3 is optimistic about its growth prospects. The Malaysian GBS industry (including CX) is expected to expand from RM24.8 billion in 2023 to RM31.7 billion by 2027, with a compound annual growth rate (CAGR) of 6.3%. DAY3’s focus on technological innovation and strategic client partnerships positions it well to capitalise on this industry growth. The company is also strengthening its leadership and management teams to support its growth and diversification strategies.

Reflecting its strong financial performance and commitment to returning value to shareholders, DAY3 declared a single-tier first interim dividend of 0.725 sen per share for the financial year ending 31 December 2024. This dividend, amounting to RM3.48 million, was paid out on 28 June 2024.

With a solid financial performance and the company gearing up for the next level of expansion, we believe DAY3 is now a BARGAIN BUY, especially with the share price touching key support levels. Stay tuned for more updates from us on DAY3.