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Author: kltrader   |   Latest post: Tue, 10 Dec 2019, 10:08 AM


Destini Bhd - EPS Dilutive, Maintain BUY

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Proposed private placement of up to 231.05m shares at a price to be determined

Destini announced a proposed private placement (PPP) of 231.05m new shares, representing up to 20% of the total number of issued shares in Destini to third party investor(s) to be identified at a later date and at an issue price to be determined later. The issue price will not be at a discount of more than 10% to the 5-day VWAP of Destini shares immediately preceding the price-fixing date. The PPP is expected to be completed by 4Q2019.

Placement proceeds to be utilized for repayment of borrowings and working capital

Total estimated placement proceeds of RM49.67m (based on the illustrative placement price of RM0.215) will be utilized to repay bank borrowings (RM21.00m), finance working capital requirements for existing and new projects (RM28.39), and pay estimated expenses of the placement exercise (RM0.28m).

Gearing will improve but NAV and EPS will be diluted

The PPP will enhance the cash reserve of the group, which has declined from RM52.36m as at 31 December 2016 to RM6.46m as at 30 June 2019. The group has been using internally generated funds and bank borrowings to fund capital expenditure requirements and related costs of existing projects, including the Offshore Patrol Vessels (OPV) project of which RM275.00m remains to be billed. The PPP will reduce group gearing from 0.27 times to 0.21 times but lowers net asset per share from RM0.44 to RM0.40 (Fig 1 next page). Forecast FY20 EPS will also be reduced. Based on a weighted average interest cost of 7.38% p.a., there will be a net interest saving of RM1.16m. But the additional 231.05m new shares will dilute FY20F EPS from 1.6 sen to 1.4 sen, assuming no additional enhancement of operational forecasts.

TP cut to RM0.25 due to dilutive effect of PPP

Based on the pending dilution of FY20F EPS to 1.4 sen and an unchanged target PE of 17.1x, target price for Destini is cut from RM0.28 to RM0.25. Dividend forecast for FY20F remains unchanged at 1.0 sen.

Maintain BUY rating

Backed by a potential capital upside of 19.0% as well as a still high net asset per share of RM0.40 and low financial risk after the PPP, we maintain our BUY rating on Destini. Dato’ Rozabil @ Rozamujib Abdul Rahman’s direct and indirect (through BPH Capital SB, Utarasama Marine SB, R Capital SB and Mazer SB) shareholdings in Destini will be diluted from 27.05% to 22.54% after the PPP.

Source: Mercury Research - 13 Sept 2019

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