DAYANG – Fundamental Analysis (22 Jun 2016)

Excel – Download the analysis file

Latest Financial – Q1 2016 Financial Report (25 May 2016)

FY16 Q1 Results Highlight:

  • Revenue was weaker at RM111.8m (-41.2% YoY, -49.7% QoQ) with a core net loss of RM26.4m (->100.0% YoY, >100.0% QoQ) fueled further by higher YoY administrative and finance costs.
    • The weaker results are mainly attributed to the lower vessel utilisation and lower value of work orders received and performed during the quarter.
  • 1QFY16 lower profit contribution from lesser work orders performed and higher interest incurred amounting to RM25.8m from increased borrowings YoY. PBT therefore saw a loss (excluding share of results of an associate and FV gain) that increased by RM15.1m due to losses in Perdana for the periods under consolidation. QoQ results were also drastically affected as 4Q15 included the FV gain of RM26.8m from the re-measurement of the equity interest held in Perdana on 24 July 2015 to FV

Valuation:

  • In my opinion, fair value of DAYANG range from 1.15 to 1.27. Uncertainty risk of fair value is from MEDIUM to HIGH.

Going Forward:

  • Debt restructuring for Perdana’s USD-denominated debt is still ongoing and the group intends to refinance the loans with MYR-denominated loans to reduce currency risk for the group. Group is unlikely to take delivery of its 2 upcoming barges (SK317 &SK318) and it has already written down on the deposit paid for the 1st vessel, which is a prudent move for the group under the current environment to avoid further strain on balance sheet and earnings.Despite the unfavourable short-term outlook for Perdana due to lower average utilisation, the acquisition is a strategic fit for both companies as Perdana’s fleet of vessels will be complementary to Dayang’s HUCC business. This will help Dayang to entrench its position for next round of HUC tender in 2018/2019.
  • Presently, the Group has call-out contracts estimated at about RM3.6 billion to last at least until 2018 and an outstanding tender book of approximately RM350 million.
  • Dayang is tendering RM350m worth of contracts with tenderbook expected to expand given submission of several tenders in the next few months.
  • Although oil prices have trended above the USD40/bbl level, uncertainties remain however, and which has left O&G industry players very cautious. This has influenced Dayang’s primary client, Petronas to cut back on their activities and would therefore be a drag on revenue from lower work orders. Dayang’s strategy is to focus its operations on areas of maintenance which have brighter prospects. Major decisions taken during end-2015 which includes management restructuring of Perdana, refinancing its loans are expected to position the Group better for longer-term sustainability through this down-cycle of O&G.
  • I will continue to hold and accumulate DAYANG as I believe that DAYANG will be able to go through the turbulence.

At the time of writing, I owned shares of DAYANG.

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