KL Trader Investment Research Articles

Author: kltrader   |   Latest post: Wed, 22 Jan 2020, 1:10 PM


Destini - 3Q19 Still Below Expectation

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Destini reported another set of poor results in 3QFY19

Destini reported a net profit of just RM0.7m in 3QFY19, not significantly better than the RM0.6m earned in each of 1QFY19 and 2QFY19. Core net profit in 9MFY19 is just RM2.4m, better than in 9MFY18 as 3QFY18 revenue plunged to RM11.7m.

3QFY19 core net profit improved yoy but declined qoq

Destini’s 3QFY19 revenue and core net profit (after adjusting for fair value adjustment on investment in securities) increased by 676.8% and 105.7% yoy as the plunge in revenue in 3QFY18 resulted in a core net loss of RM12.3m. Qoq, revenue improved by 101.8% due to higher contribution from manufacturing services and MRO (maintenance, repairs and overhaul) services but core net profit declined.

9MFY19 revenue declined but core net profit improved

For the first nine months of FY19, revenue declined by 26.1% mainly due to strong sales in the first two quarters of FY18. However, 9MFY19 core net profit is higher at RM2.4m as the sharp core net loss in 3QFY18 dragged down 9MFY18 core net profit to RM0.2m.

Cutting FY19F core net profit forecast by 54.0% but holding FY20F forecasts

As profitability remains lacklustre in 3QFY19, we cut our FY19F core net profit forecast by 54.0% to RM5.2m after trimming revenue from RM360.0m to RM330.0m. FY20F forecasts are maintained as we expect government spending on MRO, naval and aviation services for the security agencies, and rail related projects to improve. Destini has also announced a proposed private placement (PPP) of 231.05m new shares to raise RM49.7m (based on the illustrative placement price of RM0.215) to repay bank borrowings as well as finance working capital requirements for existing and new projects

Taking into account the PPP and pegged at 17.1x, TP unchanged at RM0.28

Our FY20F EPS forecast takes into account the net interest savings and dilutive effects of the PPP. Pegged to an unchanged PE of 17,1x, target price for Destini is maintained at RM0.25. FY20F dividend forecast remains unchanged at 1.0 sen.

Maintain BUY rating

Destini’s management continue to expect the operating environment to remain challenging and competitive. But we believe the share price is well backed by a net asset per share of RM0.40 and NTA of RM0.25. Destini is one of the few local companies with proven capability and a reputation for timely delivery of services at competitive pricing in aviation manufacturing, MRO services, building of OPVs and NGPCs, and O&G decommissioning services and fabrication. We maintain our BUY rating for the stock.

Source: Mercury Research - 2 Dec 2019

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