Dayang Enterprise Holdings Bhd
(April 11, RM1.10)
Upgrade to buy with a higher target price (TP) of RM1.42: We are turning more positive about Dayang Enterprise Holdings Bhd as financial year 2017 (FY17) will be a stronger year for the company, underpinned by higher hook-up and commissioning (HUC) and topside maintenance orders on improved oil prices, and better vessel utilisation of Perdana vessels with more contracts in hand.
In FY17, its HUC work orders will improve as it is sitting on a RM2 billion order book. In addition, the group may potentially secure a share of Petroliam Nasional Bhd maintenance contracts and Pan Malaysia packages, which will be awarded this year. FY16 was a bad year for the group with low level of HUC work orders due to weak oil prices, higher interest cost from Perdana debt consolidation and losses from its vessel business. However, on a core basis, its bread and butter HUC actually reported decent numbers with a core profit before tax of RM64.7 million, after excluding losses from Perdana of RM42.8 millon.
We revisit Dayang’s valuations and opine that sum of parts (SoP) is a better valuation methodology for the group due to its two separate business natures. We value Dayang’s core HUC and topside maintenance business segment at RM1.03 per share, pegging 12 times price-earnings ratio (PER) to FY17 profit after tax of the business. For its offshore support vessel business, Perdana, we value it based on 0.5 times book value of 77 sen per share, translating into a fair value of 38 sen per share, significantly below Dayang’s mandatory general offer price of RM1.25 (in terms of Dayang share base) in 2014. We believe Dayang would prefer to maintain its controlling stake in Perdana as it is able to raise funds through equity financing (that is, rights issue or private placement). Therefore, we anticipate a near-term corporate exercise by Dayang to improve the liquidity of Perdana Petroleum.
We upgrade to “buy” from “hold” with the TP raised to RM1.42 from RM1.11 upon application of SoP-driven valuation from price-to-book value previously. — Hong Leong Investment Bank Research, April 11