Dayang has proposed to distribute up to 292.2 million ordinary shares in Perdana Petroleum
KUALA LUMPUR: Kenanga Investment Bank Research is positive on Dayang Enterprise
’s long-awaited maintenance, construction and modification (MCM) services contract, and kept its outperform call with a target price of RM1.10.
It said on Monday although the contract value was not disclosed, it believes the amount could range from RM1bil to RM1.5bil but with margins lower than the previous win amidst vigorous industry cost rationalisation.
“While maintaining the earnings estimates, we keep our outperform call on the stock with unchanged TP of RM1.10 (implying a FY18E price-to-earnings ratio (PER) of 12.5 times) pegged to 1.1 times FY18E price-to-book value,” it said.
Last Friday, Dayang announced that its unit bagged a contract from Petronas Carigali Sdn Bhd to provide the services Package A (Offshore) - Sarawak Oil.
The contract came into effect on Sept 20 for five years with one-year extension option at an agreed fixed schedule of rates.
“We are positive on the contract win as the five-year maintenance contract will provide earnings visibility for its bread and butter business.
Kenanga Research pointed out that while the contract value was not disclosed, it believed the total firm contract value could range from RM1bil to RM1.5bil depending on the amount of work orders received.
Recall that Dayang won the RM800mil top-side maintenance services contract from Petronas in February 2011 but total revenue recognised was widened to RM1.4bil due to additional work scope allocated.
Given the rigorous cost optimisation over these few years, the project EBIT margins could be lower, estimated at 15%-20% vs its historical margins of 20%-25% before the oil prices’ plunge.
Recap that Dayang had proposed a distribution of up to 292.2 million ordinary shares or 37.5% equity stake in Perdana Petroleum by way of dividend-in-specie to the shareholders of Dayang.
While the proposal has been approved in the EGM held on Aug 9, “we expect the re-listing of Perdana upon completion of the exercise in October”.
“Meanwhile, we believe the value of the dividend share could be lower than the last traded price of RM1.54 prior to its suspension on Sept 30, 2015 pending approval from Securities Commission.
“Post distribution of dividend-in-specie, Dayang’s stake in Perdana will be reduced to 60.5% and its public shareholdings spread will be increased to 20%.
"Furthermore, Perdana also announced a private placement of up to 10% of the total number of issued shares, which would lower Dayang’s stake in Perdana to 55%. The corporate exercises are expected to be completed by 4Q17.
“Pending confirmation of work orders from Petronas Carigali, we opt to maintain our earnings forecast as we have factored in RM1.5bil order-book replenishment and earnings will only contribute meaningfully in FY18,” it said.
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