HLIB Research turning more positive on Dayang

  • Analyst Reports
  • Tuesday, 11 Apr 2017

HLIB Research said it revisited Dayang

KUALA LUMPUR: Hong Leong Investment Bank (HLIB) Research is turning more positive on Dayang as FY17 will be a stronger year for the company and it raised its target price from RM1.04 to RM1.42.

It said on Tuesday the optimism was underpinned by the higher hook-up and commissioning (HUC) and also topside maintenance orders on improved oil prices and better vessel utilisation of Perdana vessels with more contracts in hand.

To recap, US light crude oil and Brent prices have rallied to above USD$50 in recent weeks after OPEC decided to cut back on the oil output.

On Tuesday, US crude oil rose for a sixth consecutive session on Tuesday to hit its highest level in five weeks, underpinned by tensions following a US missile strike on Syria and a shutdown at Libya's largest oilfield.

US West Texas Intermediate (WTI) crude futures were up 10 cents at US$53.18 a barrel by 0009 GMT. The market has gained for six sessions in a row, its longest rising streak this year. The international benchmark, Brent crude futures, gained 9 cents at US$56.07 per barrel.

The research house said in 2017, its HUC work orders will improve as it is sitting on RM2bil orderbook. In addition, the group may potentially secure a share of Petronas maintenance contracts (MCM) and Pan Malaysia packages, which will be awarded this year.

To recap, FY16 was a bad year for the group with HUC work orders at low due to weak oil prices, higher interest cost from Perdana debt consolidation and losses from its vessel business.

“However, on a core basis, its bread & butter HUC actually reported decent numbers with core PBT at RM64.7mil, after excluding losses from Perdana of RM42.8mil,” it said.

HLIB Research said it revisited Dayang’s valuations and opine that the sum-of-parts (SoP) is a better valuation methodology for the group due to its two separate business natures.

“We value Dayang’s core HUC and topside maintenance business segment at RM1.03 a share, pegging 12 times price-to-earnings ratio (PER) to FY17 profit-after-tax (PAT) of the business.

“For its offshore support vessels business (Perdana), we value it based on 0.5 times to book value of 77 sen a share, translating into fair value of 38 sen a share, significantly below Dayang’s mandatory general offer price of RM1.25 (in terms of Dayang share base) in 2014.

“We believe Dayang would prefer to maintain its controlling stake in Perdana as that it is able to raise funds through equity financing (i.e. rights issue or private placement). Therefore, we anticipate near term corporate exercise by Dayang to improve the liquidity of Perdana Petroleum,” said the research house.
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