Destini expands marine segment with foreign tie-up

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EASING its dependency on government contracts, Destini Bhd is strategising a move to expand its marine business. The group is in the midst of finalising three collaborative agreements with a London-based safety and survival equipment manufacturer.

Its subsidiary Vanguard Composite Engineering Pte Ltd will have access to an enlarged pool of customers globally, according to a source familiar with the company. The first agreement will provide Vanguard with a distribution channel for its lifeboats and lifeboat hooks in Europe, the US and Africa. Vanguard currently has a presence in Asia-Pacific, Australia, Europe, the Middle East and the Americas.

"This will strengthen Vanguard’s foothold in existing markets and expand its reach on a global scale as it will now be able to increase the supply of its products overseas. This will also expand the group’s revenue base,” says the source.

He adds: "On average, Vanguard supplies 100 lifeboats a year. which translates into revenue of S$15 million (RM38.6 million). With the collaboration with the foreign company, it may see an additional 30 to 40 lifeboats a year, which will add S$4 million to S$5 million to its revenue.”

To recap, Destini acquired a 51% stake in Singapore-based Vanguard for RM10 million in 2012. Currently, Destini is planning to buy out the remaining 49% stake in Vanguard for RM26 million by year-end. The equity interest is presently held by a Singaporean businessman Ng Tuck Whye.

The source reveals that Destini’s new partner will be working with its two other wholly-owned subsidiaries, Destini Prima Sdn Bhd and TF Corp Pte Ltd, which are part of its marine division, on an agreement. This second agreement will give Destini the right to distribute and maintain the London-based firm’s liferafts for commercial use in Malaysia, he says.

Currently, Destini is only authorised to distribute and maintain life rafts for the country’s defence sector. Once the agreement is inked — expected to be by end-month — the group will be able to distribute and maintain life rafts for the oil and gas and shipping industries as well.

“This will open up Destini’s life raft market within Malaysia. The group will, later on, be able to distribute life rafts commercially to shipping companies and Petroliam Nasional Bhd’s (Petronas) oil platforms,” says the source.

The third agreement will see the London-based firm referring its clients to Singapore-based TF Corp for the maintenance of lifeboats and other life-saving equipment. This is expected to increase the group’s marine maintenance, repair and overhaul (MRO) activities.

Note that Destini has three main business segments. The marine division contributes 30% to the group’s revenue while another 30% comes from its aviation MRO division, which is awaiting certification by the European Aviation Safety Agency to enable Destini to secure commercial aviation jobs.

The remaining 40% is derived from its oil and gas division, which is led by Samudra Oil Services Sdn Bhd. It was acquired by the group for RM80 million earlier this year.

Samudra Oil is one of the group’s main earnings contributors, as reflected in Destini’s 2QFY2014 net profit, which more than doubled to RM1.23 million from RM514,000 in the previous corresponding period. Revenue was also higher at RM36.81 million from RM22.73 million.

For the first half of the year, the group saw a net profit of RM4.31 million as compared with RM2.92 million previously, on the back of a revenue of RM65.88 million, from RM39.07 million previously.

Since it has been lifted from PN17 classification, Destini’s share price has been on an uptrend, reaching a five-year high of 74 sen on June 30 this year. This represents a 128% jump from the one-year low of 32.5 sen on Oct 22 last year. The stock closed at 50 sen last Thursday.

UOB Kay Hian initiated coverage on Destini on June 16 with a “buy” call and a target price of 87 sen, which implies a FY2015 forecast price earnings ratio (PER) of 13.2 times.

“Our valuation has taken into account the enlarged share base due to the issuance of warrants and new shares for the Vanguard acquisition. Our target price implies an upside of 32.8% from its current share price,” it says.

UOB forecasts that Destini’s earnings will leap fourfold in FY2014, underpinned by a nine-month earnings contribution from Samudra Oil and full-year earnings contributions from TF Corp and Vanguard.

“For FY2015, our projected earnings growth of 59% took into account the full-year contribution from Samudra Oil’s tubular handling business and the respective earnings growth of 10% and 62% from the marine and aviation MRO businesses,” UOB adds.

This article first appeared in The Edge Malaysia Weekly, on October 27 - November 2, 2014.