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This article first appeared in The Edge Financial Daily on February 2, 2018

Daya Materials Bhd
(Jan 30, 8.5 sen)
Maintain neutral with an unchanged target price (TP) of nine sen:
Daya Materials Bhd’s wholly-owned subsidiary Daya Polymer Sdn Bhd has announced entering into a sale and purchase agreement (SPA) with GB Chemical Sdn Bhd for the sale of a plot of leasehold land together with two single-storey factories in Penang for a total consideration of RM10 million. We laud this move as it enables the group to monetise some of its non-contributing fixed assets with the expressed intent of reducing its gearing and borrowing costs going forward. The group has seen positive news flows in recent weeks with regard to fresh work orders being secured. While still too early to call it a conclusive turnaround, we are increasingly positive over its mid- to long-term prospects as efforts to improve both the top line and cost efficiencies are starting to bear fruit. We retain our “neutral” call with an unchanged TP of nine sen, however, pending clarity on its planned private placement which could be near-term dilutive.

The disposal price of RM10 million has been reached on a willing buyer-willing seller basis, while also taking into consideration its original investment cost of RM10.8 million (transacted in 2003) and the audited net book value of RM7.8 million as at December 2016. An estimated disposal gain of RM2.2 million will be realised, but which we have not factored into our earnings assumption as yet pending completion of the transaction. GB Chemical is in the business of manufacturing emulsion polymer products, industrial glue and adhesives, hence this deal making sense for both parties. It will however be contingent on, among others, GB Chemical’s ability to secure financing for the settlement of the balance purchase amount (RM9 million), having already paid RM1 million to effect this SPA.

Proceeds from the disposal will be used in its entirety to pare borrowings. While the group still has some way in lowering its long-term liabilities which totalled RM193 million as at Sep 30, 2017, this is, nonetheless, a slow step in the right direction. — PublicInvest Research, Jan 30

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