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PublicInvest Research

Author: PublicInvest   |   Latest post: Fri, 10 Jul 2020, 9:54 AM

 

Daya Materials Berhad - Raging Storms

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The Group reported a whopping RM158.5m loss for FY18, slightly more than double FY17’s RM77.8m loss as another round of impairments were undertaken likely in lieu of its regularization plan which will need to be submitted by August should it be successful in getting an extension from Bursa Malaysia. Revenue was 0.9% lower YoY to RM290.7m, reflective of the Group still being operationally sound, albeit with gross profits more than halving to RM15.4m in FY18 from RM39.8m in FY17. While there may be some encouragement from the fact that the company is operationally profitable, though that is now coming into question with a 4QFY18 gross loss, we are increasingly wary that its financial constraints may be an impediment towards it securing much-needed new contracts. With RM200.4m borrowings coming due within the year, its regularization plan is of great importance, now more than ever. Pending clarity and details on the plan, our target price/valuation continues to be placed under review with Neutral call maintained. Earnings estimates are left unchanged at this juncture, but present significant downside bias.

  • The Oil and Gas segment reported a pretax loss (PBIT) of RM7.7m for FY18 versus a pretax gain of RM4.4m in the previous corresponding period, this coming as a result of impairment losses on cranes and forklifts.
  • The Technical Services (TS) segment also swung into a pretax loss position of RM24.2m for FY18 from a pretax gain of RM8.1m in FY17. Project losses upon final settlement of a construction contract and provision for additional costs in relation to its ongoing construction contracts were the major drags.
  • What next? With the recent year’s financials marred, amongst others, by RM39.2m in allowance for doubtful debt on receivables, RM83.3m impairment loss on goodwill and RM16.0m impairment loss on property, plant and equipment, the Group’s shareholders’ equity has now sunken to an RM150.5m deficit. Should its recent debt restructuring exercise (announced mid-January) in which shares were issued at 2.5sen apiece be taken as a yardstick, could we see Daya’s share base ballooning to almost 10bn via a rights issue and/or private placement exercise? Assets will still have to be disposed given its RM200.4m in debt coming due by this year. We await details of its regularization plan.

Source: PublicInvest Research - 1 Mar 2019

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