Friday 29 Mar 2024
By
main news image

This article first appeared in The Edge Financial Daily on August 6, 2018

Destini Bhd
(Aug 3, 31.5 sen)
Maintain add with an unchanged target price of 60 sen:
Destini Bhd announced after market close last Thursday that it won a well abandonment contract worth around US$5 million (RM20.4 million) from Petronas Carigali Sdn Bhd. This is for the Pulai- B work order.

This is positive news for Destini, especially its oil and gas (O&G) division, as we believe this contract further establishes Destini as a credible old oilfield decommissioning (OOFD) player in the industry. This contract will be Destini’s second OOFD job from Petronas. Destini completed its first OOFD job in 2016.

We estimate that the profit margin for an OOFD job is high (about 30% to 40% profit before tax [PBT] margin) as OOFD jobs are specialised and there are not many such players in the region. The long-term outlook would also appear to be bright, as according to Destini’s annual report, 65% of Malaysia’s over-300 platforms are above the age of 25, which is near the end of their life cycles. That could mean more OOFD jobs for established OOFD players like Destini over the next few years.

Assuming that this OOFD is completed before end-2018 with a 30% to 40% PBT margin, this latest contract should contribute an additional RM4.3 million to RM5.8 million in net profit (an additional 0.4 sen to 0.5 sen earnings per share) to its financial year 2018 (FY18) bottom line. And if the company secures another OOFD job soon, its O&G division could potentially break even this financial year.

2017 was a difficult year for the company. Destini did not win any OOFD jobs in FY17 and as such, the O&G division recorded a RM15.1 million net loss compared to a RM4.9 million net profit in FY16 when Destini completed its first OOFD job for Petronas which helped the division generate positive results.

Shipbuilding remains the company’s main revenue generator in FY18. Since end-2015, Destini has been constructing six new-generation patrol craft (NGPC) for the Malaysian Maritime Enforcement Agency. The total contract value is RM381.3 million and all the NGPCs are scheduled to be fully delivered by end-2018. — CGSCIMB Research, Aug 2

      Print
      Text Size
      Share