Daya Materials Bhd
(Aug 21, 1 sen)
Maintain neutral with no target price (TP) set: The group announced that it had entered into an arrangement with WK Propel Sdn Bhd whereby the latter will provide it and its subsidiaries with an initial RM4 million, pending the finalisation of the group’s regularisation plan. Funds will be used for head office costs such as overheads and professional fees, and for working capital purposes (payment of purchases, salaries).

This is certainly a welcome development and provides some temporary reprieve to the group mired in financial difficulties since its classification as a Practice Note 17 company in February 2018, to which it had just recently applied to Bursa Malaysia again for an extension (nine months) to the deadline for submission of its plans. Pending clarity and details on the plan, our TP/valuation continues to be placed under review. Our “neutral” call is maintained, with earnings estimates also left unchanged at this juncture, though we continue to caution for significant downside biases.

The funding arrangement will see WK Propel Sdn Bhd subscribe to a 19.5% of an enlarged stake in Daya Maxflo Sdn Bhd (DMax), subject to consent of the Export-Import Bank of Malaysia, which is the current chargee of the company’s shares, as well as minority shareholders of DMax.

A loan will be provided, in the event consents from the abovementioned parties are not procured. A two-year put option will also be included in the deal should funding be by way of a share subscription, requiring the group (or any subsequent company pursuant to its regularisation plan) to purchase the DMax shares at a higher of RM4 million plus holding cost of 8% per annum, or of net tangible assets of DMax.

If via a loan, it shall be repaid within 18 months from the date the funding is first released, or upon completion of the proposed regularisation plan, whichever is earlier

In explaining the rationale for this arrangement, the group revealed that it had previously contemplated a regularisation plan involving, among others, a proposed capital reduction exercise, a proposed rights issue of new ordinary shares in Daya Materials  with free detachable warrants, and a proposed restructuring of debts owing to Perfect Propel Sdn Bhd, which was announced on Jan 18.

The board is now considering an enhanced regularisation plan which is envisaged to entail, among others, a proposed share exchange between Daya Materials and a Newco and the assumption by Newco of Daya Materials’ listing status, a distribution of shares held by Daya Materials in identified viable subsidiaries to Newco, a proposed settlement of debts owing to financiers and creditors, the proposed put option highlighted above, and a proposed fundraising exercise comprising a rights issue and placement of Newco shares with warrants. — PublicInvest Research, Aug 21