PublicInvest Research retains Neutral on Dayang

Dayang has proposed to distribute up to 292.2 million ordinary shares in Perdana Petroleum

KUALA LUMPUR: PublicInvest Research is retaining its Neutral outlook for Dayang Enterprise with a target price of RM1.17, which is 5.7% below its last traded price of RM1.24.

It said on Monday the company, which provides maintenance services to the oil and gas services, expects more maintenance jobs ahead as Petronas recalibrates its budget. 

“Poised as a contender to win more awards with the group’s RM5bil tender book and sustained by long term call-out contracts worth RM2.5bil to last at least until 2018 with extension options up to 2019. 

“We believe Dayang has the capabilities to ensure the better vessel utilisation management of Perdana Petroleum going forward,” it said.

Dayang has proposed to distribute up to 292.2 million ordinary shares in Perdana Petroleum by way of dividend-in-specie to the shareholders of Dayang. 

The shares represent 37.5% equity interest in Perdana, and will be paid out of Dayang’s retained earnings. 

Dayang as at 30 April 2017 holds 98.0% equity interest in Perdana, translating to 763 million Perdana shares. The exercise is expected to be completed by 3QFY17, and will comply with the requirements for Perdana to resume its listing status.

“We continue to maintain our Neutral recommendation on Dayang with a TP of RM1.17 pegged to 10 times price-to-earnings (PE) multiple on our FY18F EPS of 11.7sen. 

“Perdana continues to reflect positive results with a 55.3% on-year higher contribution from the marine charter division in FY16 versus the corresponding year, which would continue to elevate both Dayang and Perdana’s performances. 

We are however still expecting losses from Perdana in the interim, and thus the lesser consolidation of Perdana to Dayang’s group results of c.60.5% is negligible at this juncture and has no effect on our current valuations. We thus view this strategy positively and believe this move will help the group better manage Perdana as a strategic shareholder,” said PublicInvest Research. 

The research house pointed out the dividend shares is RM1.55, being the offer price of the mandatory general offer (MGO) of Perdana by Dayang, completed on Aug 13, 2015. 

With the intention of Dayang to maintain the listing status of Perdana since the MGO dated July 23, 2015. The exercise would uplift the trading suspension of Perdana, ensuring at least 25% public spread requirement by Bursa Securities. Dayang currently holds 98.0% of Perdana, and thus the latter’s public shareholding stands at 2.0% only. 

“Dayang will only consolidate c.60.5% of Perdana’s group results. The earnings and EPS of Dayang would therefore see a 37.5% less effect upon the completion of the exercise. However we are still expecting losses from Perdana, and thus the lesser consolidation of Perdana to Dayang’s Group results is negligible at this juncture and has no effect on our current valuations. 

As for Perdana, the average utilisation for FY16 stood at c.58%, which would increase further to mid-60% range for FY17F.