Dayang Enterprise Holdings Bhd
(Nov 5, RM2.80)
Maintain “buy” with lower target price (TP) of RM4.52:The first tranche of the private placement proposed by Dayang Enterprise (Dayang) was completed on Oct 1 for 52.1 million shares.

The initial proposal was to place out 82.5 million shares, which are 10% of the fully paid-up capital as of Sept 3, 2014 — the date of the proposal. Note that the placement price was also set at RM3.37 instead of the initial RM3.69. The first tranche has raised RM175.6 million.

In our Sept 11, 2014 report — Dayang Enterprise: 3 Possible Ways To Use Placement Proceeds, we highlighted three possible scenarios in which Dayang could utilise its proceeds: i) accumulate more shares in Perdana Petroleum (Perdana) (Buy, TP: RM2.20), ii) ramp up capacity for engineering, procurement, construction and commissioning (EPCC) jobs; and iii) purchase deepwater-capable marine assets.

Dayang has been slowly accumulating Perdana shares during the recent market selldown and currently owns 26.6% of Perdana shares.

On the EPCC bids, we gather from our channel checks that Dayang has been bidding and preparing for an EPCC job related to an enhanced oil recovery off the coast of Sarawak.

In light of the enlarged share base and a larger stake in Perdana, we update our model and take the opportunity to lower our TP to RM4.52 (from RM4.80), based on a 16 times of financial year 2015 forecast price-earnings ratio.

We lift our earnings forecast marginally and reiterate “buy” on Dayang, which is a local premier oil and gas service provider with an excellent track record, in our view.— RHB Investment Bank, Nov 5

This article first appeared in The Edge Financial Daily, on November 6, 2014.