KUALA LUMPUR: Kenanga Research is retaining its underperform recommendation on Dayang Enterprise due to a share dilution arising from the fund-raising exercises, coupled with the under-whelming results. 

It said on Friday it trimmed its FY19-20E earnings forecasts by 12%-8% after lowering its offshore topside maintenance services (TMS) revenue and margins assumptions. 

“Our sum-of-parts target price is also lowered to 80 sen (from RM1.05 previously) after revaluing its offshore TMS at nine times PER (from 12x) on the back of the unexpected losses – in-line with valuations of selective offshore peers (e.g. Deleum, Petra) operating within the similar space,” it said. 

Kenanga Research said its target price implied forward price-to-book value of 0.7 times and price-to-earnings ratio of eight times.

Since its “take profit” underperform call in March, the stock has retraced 47%.

Dayang recorded 1Q19 core loss of RM5.2m (after adjusting for unrealised forex gains), against the research house and consensus full-year earnings forecasts of RM106.1m and RM116.8m, respectively, dragged by poorer-than-expected offshore TMS. 

“While we had anticipated the quarter to post sequentially weaker numbers given last quarter’s high lump-sum work orders, we, however, were not expecting a loss,” it said.

It also pointed out Dayang had finally proposed its much-anticipated debt restructuring earlier this week, entailing; (i) a one-for-10 rights issue, (ii) private placement of up to 10% of total issued shares, (iii) issuance of Sukuk of RM682.5m and subscription of Perdana’s RCPS.

“Overall, this is expected to reduce Dayang’s net gearing to 0.66 times (from 0.72 times currently), as well as diluting its share base by 20%. 

“The exercises are expected to be completed by 4Q19, pending shareholders and authorities’ approvals. Meanwhile, as 1Q is seasonally a weaker quarter, we are expecting up-coming quarters to see some improvement in numbers, backed by its order-book of RM3b,” it said.