Dayang Enterprise Holdings Bhd
(Oct 9, RM1.76)
Upgrade to outperform with a higher target price of RM2: While Dayang Enterprise Holdings Bhd started with an underwhelming first quarter of financial year 2019 (1QFY19) with core losses of RM5 million, it bounced back in 2QFY19 with a core profit of RM53.5 million — one of its best 2Q performances in years. Moving forward into 3QFY19, we have reasons to believe that Dayang could possibly post even stronger earnings, underpinned by increased number of work orders in topside maintenance, on top of higher vessel utilisation. This is in line with Petroliam Nasional Bhd’s (Petronas) guidance of a higher capital expenditure spend in the second half of 2019, with focus on upstream oil and gas, jiving with the Petronas’ latest activity outlook. Looking at a longer-term view beyond FY19, Dayang could still benefit from higher decommissioning activities, while its solid order book (of about RM3 billion) provides visibility for the next two to three years.

 
To recap, Dayang had earlier announced plans for its debt restructuring in May 2019, which entails a one-for-10 rights issue, and a proposed private placement of about 10% of its total share capital. The company concluded its required extraordinary general meeting earlier last week, with the rights issue on track to be concluded by the end of 2019, although the proposed private placement could take up to 1QFY20. Post-rights issue, we believe Dayang’s net gearing could ease to about 0.6 times, from 0.7 times as at end-2QFY19, leading to an interest cost savings of about RM6 million to RM7 million per year, based on an illustrative rights issue price of 80 sen. — Kenanga Research, Oct 9